Portsmouth Port Services creates and maintains shipping channels at various ports around the world. The company is considering the purchase of a $72,000,000 ocean-going dredge that has a five-year life and no salvage value. The company depreciates assets on a straight-line basis. This equipment’s expected annual cash flow on a before-tax basis is $18,600,000. Ports-mouth requires that an investment be recouped in less than five years and have a pre-tax accounting rate of return of at least 18 percent.
Payback; ARR
Portsmouth Port Services creates and maintains shipping channels at various ports around the world. The company is considering the purchase of a $72,000,000 ocean-going dredge that has a five-year life and no salvage value. The company
a. Compute the payback period for this equipment.
Note: Round your answer to one decimal place (i.e. round 4.3555 to 4.4).
Payback period Answer years
b. Compute the accounting rate of return for this equipment.
Note: Round percentage to one decimal point (i.e. round 4.555% to 4.6%).
Accounting rate of return Answer%
c. Is the equipment an acceptable investment for Portsmouth? Answer
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