Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the boat is as follows: (Ignore income taxes.) Purchase cost Annual net cash inflows that will be provided by the boat Life of the boat Required: 1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.) Payback period Yes O No year(s) 1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased? $232,000 $ 55,000 Simple rate of return 14 years 2-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming $13,600 salvage value. (Round your answer to 1 decimal place.) %

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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Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the
boat is as follows: (Ignore income taxes.)
Purchase cost
Annual net cash inflows that will be provided by the boat
Life of the boat
Required:
1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.)
Payback period
Yes
O No
1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased?
year(s)
Simple rate of return
$232,000
$ 55,000
2-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming
$13,600 salvage value. (Round your answer to 1 decimal place.)
Yes
%
2-b. Will the boat be purchased if the company's required rate of return is 14%?
14 years
Transcribed Image Text:Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the boat is as follows: (Ignore income taxes.) Purchase cost Annual net cash inflows that will be provided by the boat Life of the boat Required: 1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.) Payback period Yes O No 1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased? year(s) Simple rate of return $232,000 $ 55,000 2-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming $13,600 salvage value. (Round your answer to 1 decimal place.) Yes % 2-b. Will the boat be purchased if the company's required rate of return is 14%? 14 years
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