Splash City is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $481,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 10% on investments of this nature. Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.) Amount invested 1,870,000 Expected annual net cash inflow 481,000 $ Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested 242250 Requirements CERED 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. 2. Recommend whether the company should invest in this project. -X B E 1870000 H Payback 3.9 years ARR 13 %

Splash City is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $481,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 10% on investments of this nature. Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.) Amount invested 1,870,000 Expected annual net cash inflow 481,000 $ Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested 242250 Requirements CERED 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. 2. Recommend whether the company should invest in this project. -X B E 1870000 H Payback 3.9 years ARR 13 %

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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