Solve the following three independent scenarios: A grocery store is considering the purchase of a new refrigeration unit with an initial investment of $412,000, and the store expects a return of $100,000 in year one, $72,000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period? Payback period = Round your Payback Period (PB) answer to two decimal places (i.e. 12.34). An auto repair company needs a new machine that will check for defective sensors. The machine has an initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)? Accounting Rate of Return (ARR) = years. Round your ARR answer, in percentage format, to two decimal places (i.e. 12.34%).
Solve the following three independent scenarios: A grocery store is considering the purchase of a new refrigeration unit with an initial investment of $412,000, and the store expects a return of $100,000 in year one, $72,000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period? Payback period = Round your Payback Period (PB) answer to two decimal places (i.e. 12.34). An auto repair company needs a new machine that will check for defective sensors. The machine has an initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)? Accounting Rate of Return (ARR) = years. Round your ARR answer, in percentage format, to two decimal places (i.e. 12.34%).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![### Scenario-Based Financial Calculations
#### Scenario 1: Payback Period Calculation
A grocery store is assessing the purchase of a new refrigeration unit with an initial investment of $412,000. The expected returns are as follows:
- Year 1: $100,000
- Year 2: $72,000
- Year 3: $72,000
- Year 4: $65,000
- Year 5: $65,000
- Year 6 and beyond: $38,000 annually
To determine the payback period, use the following formula:
\[ \text{Payback period} = \boxed{\text{_____}} \text{ years} \]
**Instruction:** Round your Payback Period (PB) answer to **two decimal places** (i.e., 12.34).
#### Scenario 2: Accounting Rate of Return (ARR) Calculation
An auto repair company is considering a new machine to check for defective sensors, with an initial investment of $224,000. The machine is expected to generate:
- Incremental revenues (including cost savings): $120,000
- Incremental expenses (including depreciation): $50,000
There is no salvage value. To find the accounting rate of return (ARR):
\[ \text{Accounting Rate of Return (ARR)} = \boxed{\text{_____}} \]
**Instruction:** Round your ARR answer, in percentage format, to **two decimal places** (i.e., 12.34%).
### Summary
- For the Payback Period, identify the point at which cumulative cash flows equal the initial investment.
- For the Accounting Rate of Return, calculate ARR as the average annual profit divided by the initial investment, then convert the result to a percentage.
These scenarios aim to illustrate practical financial decision-making processes commonly applicable in business investments.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6e1977ae-bab2-45cd-ad9b-1bdaf8cd8b26%2Fcd07cba3-5167-43c7-91d3-bc9f38354a69%2F9oncnl_processed.png&w=3840&q=75)
Transcribed Image Text:### Scenario-Based Financial Calculations
#### Scenario 1: Payback Period Calculation
A grocery store is assessing the purchase of a new refrigeration unit with an initial investment of $412,000. The expected returns are as follows:
- Year 1: $100,000
- Year 2: $72,000
- Year 3: $72,000
- Year 4: $65,000
- Year 5: $65,000
- Year 6 and beyond: $38,000 annually
To determine the payback period, use the following formula:
\[ \text{Payback period} = \boxed{\text{_____}} \text{ years} \]
**Instruction:** Round your Payback Period (PB) answer to **two decimal places** (i.e., 12.34).
#### Scenario 2: Accounting Rate of Return (ARR) Calculation
An auto repair company is considering a new machine to check for defective sensors, with an initial investment of $224,000. The machine is expected to generate:
- Incremental revenues (including cost savings): $120,000
- Incremental expenses (including depreciation): $50,000
There is no salvage value. To find the accounting rate of return (ARR):
\[ \text{Accounting Rate of Return (ARR)} = \boxed{\text{_____}} \]
**Instruction:** Round your ARR answer, in percentage format, to **two decimal places** (i.e., 12.34%).
### Summary
- For the Payback Period, identify the point at which cumulative cash flows equal the initial investment.
- For the Accounting Rate of Return, calculate ARR as the average annual profit divided by the initial investment, then convert the result to a percentage.
These scenarios aim to illustrate practical financial decision-making processes commonly applicable in business investments.
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