Computing the payback period and unadjusted rate of return for the same investment opportunity Guntersville Lake Marina (GLM) rents pontoon boats to customers. It has the opportunity to purchase an additional pontoon boat for $36,000; it has an expected useful life of four years and no salvage value. GLM uses straight-line depreciation. Expected rental revenue for the boat is $12,000 per year.

Required

a. Determine the payback period.

b. Determine the unadjusted rate of return based on the average cost of the investment.

c. Assume that the company’s desired rate of return is 30 percent. Should GLM purchase the additional boat?

Planning for Capital Investments 463 L.O. 8 L.O. 7, 8 PROBLEMS—SERIES B