Walter Adam is the manager of the Springs Caf. The caf has decided to add pizza to its menu. The estimated equipment costs, incremental revenues from pizza sales, and incremental cash expenses related to the sales are as follows:
1. Cost of equipment $15,000
2. Incremental annual revenues (for five years) $80,000.
3. Incremental annual expenses (for five years) $70,000.Other information
1. Assume the estimated life of the equipment is five years and that there will be no salvage value. Further assume the depreciation method used in straight line.
2. Assume the relevant discount rate for NVP purposes is eight percent.
Required:
1. Determine the ARR
2. Determine the payback period
3. Determine the NPV