Chapter 25, Problem 25SP

To determine

Introduction:

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:

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

ARR: Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

$ARR=\frac{AverageAccountingprofits}{AverageInvestment}$

Requirement-1:

To Calculate: The Payback period

To determine

Requirement-2:

To Calculate: The Accounting rate of return (ARR)