Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a six-year municipal contract. The equipment costs $1,320,000 and would have no salvage value when the contract expires at the end of six years. Estimated annual operating results of the project are as follows.

All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett’s proposal to
undertake this contract.
a. Payback period.
b. Return on average investment.
c. Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent. (Refer to the annuity table in Exhibit 26–4.)

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Revenue from contract sales .. Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $600,000 220,000 $920,000 820,000 $100,000