Chapter 16, Problem 16.25E

To determine

Concept Introduction:

Return on Investment (ROI): The return on investment is a profitability ratio that measures the percentage of profit earned on the investment made. It is calculated with the help of following formula:

  $Returnoninvestment=\frac{NetOperatingIncome}{Averageoperatingassets}$

Payback Period: Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project. The formula to calculate the Payback period is as follows:

  $PaybackPeriod=\frac{InitialInvestment}{AnnualCash\inf low}$

Requirement-a:

To Calculate:

The Return on investment for the project

To determine

Concept Introduction:

Return on Investment (ROI): The return on investment is a profitability ratio that measures the percentage of profit earned on the investment made. It is calculated with the help of following formula:

  $Returnoninvestment=\frac{NetOperatingIncome}{Averageoperatingassets}$

Payback Period: Payback period is the period in which the project recovers its initial cost of the investment. It can be calculated by dividing the initial investment by the annual cash inflow from the project. The formula to calculate the Payback period is as follows:

  $PaybackPeriod=\frac{InitialInvestment}{AnnualCash\inf low}$

Requirement-b:

To Indicate:

The importance of Payback period for the decision making