Chapter 12, Problem 12.5BYP

To determine

Cash payback method:

Cash payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the long-term investment (fixed assets) of the business.

The annual rate of return method:

The annual rate of return is the amount of income which is earned over the life of the investment. It is used to measure the annual income as a percent of the annual investment of the business, and it is also known as the accounting rate of return.

The annual rate of return is computed as follows:

$\text{Average rate of return =}\frac{\text{Estimated average annual net income}}{\text{Average investment}}$

To prepare:  A memorandum and analysis the proposal based on capital expenditure techniques.