Bird's Pharmacy has purchased a small auto for delivery of prescriptions. The auto cost $28,000 and...

 

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Bird's Pharmacy has purchased a small auto for delivery of prescriptions. The auto cost $28,000 and will be usable for seven years. Delivery of prescriptions (which the pharmacy has never done before) should increase revenues by at least $25,000 per year. The cost of these prescriptions will be about $18,000 per year. The pharmacy depreciates all assets by the straight-line method. (Ignore income taxes.) Required: (a) Compute the payback period on the new auto. (b) Compute the simple rate of return of the new auto. Bird's Pharmacy has purchased a small auto for delivery of prescriptions. The auto cost $28,000 and will be usable for seven years. Delivery of prescriptions (which the pharmacy has never done before) should increase revenues by at least $25,000 per year. The cost of these prescriptions will be about $18,000 per year. The pharmacy depreciates all assets by the straight-line method. (Ignore income taxes.) Required: (a) Compute the payback period on the new auto. (b) Compute the simple rate of return of the new auto.

Answer rating: 100% (QA)

Investment in Auto 28000 Annual cash inflows 25000 18000 7000 Annual depreciation on ... View the full answer