Homework Answers
Solution a:
Payback period = Initial Investment / Annual Savings in cash Operating costs
= $478,800 / $114000 = 4.2 years
Solution b:
Annual Net Income = Annual Savings in cash Operating costs - Annual Depreciation = $114000 - ($478800/5) = $18,240
Simple Rate of Return = Annual Net income / Initial Investment = $18240 / $478800 = 3.81%
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