Answer:
Accounting rate of return = 10.39%
Payback period = 4.62 years
Explanation:
The computations are shown below:
For accounting rate of return, it equal to
= Annual net income ÷ Investment
= $53,000 ÷ $510,000
= 10.39%
For payback period, it would be
= Initial investment ÷ Net cash flow
where,
Initial investment is $263,000
And, the net cash flow = annual net operating income + depreciation expenses
= $53,000 + $57,500
= $110,500
The depreciation expense would be
= (Original cost - residual value) ÷ (useful life)
= ($510,000 - $50,000) ÷ (8 years)
= ($460,000) ÷ (8 years)
= $57,500
Now put these values to the above formula
So, the value would equal to
= ($510,000) ÷ ($110,500)
= 4.62 years
