Splash Country is considering purchasing a water park in Atlanta, Georgia, for $1,800,000. The new facility will generate annual net cash inflows of $445,000 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 12% on investments of this nature. (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view the Present Value of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements. 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, XX) Amount invested 1,800,000 Expected annual net cash inflow 445,000 Payback 4.0 years $ Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, XX%.) Average annual operating income ARR Average amount invested 216000 Requirements 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. Print - X Done

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Splash Country is considering purchasing a water park in Atlanta, Georgia, for $1,800,000. The new facility will generate annual net cash inflows of $445,000 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 12% on investments of this nature.
(Click the icon to view Present Value of Ordinary Annuity of $1 table.)
(Click the icon to view the Present Value of $1 table.)
(Click the icon to view Future Value of $1 table.)
(Click the icon to view Future Value of Ordinary Annuity of $1 table.)
Read the requirements.
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
Expected annual net cash inflow
445,000
1,800,000
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
$
216000 +
Payback
4.0 years
ARR
C
%
Requirements
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.
Print
Done
-
X
Transcribed Image Text:Splash Country is considering purchasing a water park in Atlanta, Georgia, for $1,800,000. The new facility will generate annual net cash inflows of $445,000 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 12% on investments of this nature. (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view the Present Value of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements. 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 Expected annual net cash inflow 445,000 1,800,000 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 $ 216000 + Payback 4.0 years ARR C % Requirements 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. Print Done - X
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