Task: Waterman Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $16,000 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation.
Q1. The project's accounting rate of return (rounded to the nearest percent) on the initial investment is:
- 8 percent
- 10 percent
- 42 percent
- 75 percent
Q2. The company uses straight-line depreciation. The investment's payback period in years (rounded to two decimal points) is: