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Investments accounting rate of return


Problem: Madison Manufacturing Company is considering the following investment proposal:

Initial investment:
Depreciable assets (straight-line)    $30,000
Working capital                                 4,000
Operations (per year for 4 years):
Cash receipts                                 $20,000
Cash expenditures                            11,000
Disinvestment:
Salvage value of equipment               $2,000
Recovery of working capital                 4,000

A. The investment's payback period in years (rounded to two decimal points) is:

B. The investment's accounting rate of return on the original investment is:

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Finance Basics: Investments accounting rate of return
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