Payback Period and Accounting Rate of Return: Equal Annual Operating Cash Flows with Disinvestment (LO3)

Khazanchi is considering an investment proposal with the following cash flows:

Initialinvestment—depreciable assets... 02.2 ee ee ie se ee oes ee $100,000 haamnvestment—workingicabitalh. asc. 2s. sc 0 ales epee ee element see rer 12,500 Net cash inflows from operations (per year for 8 years)... ......... 000s eee 25,000 Disinvestment —Cepreciable:aSSeCtS.. seas ec ae we oe ee ee ke ee sees geet 10,000 DISHINGSUMeME WORKING ICAPItals sty qitetaye rs eters cys wc eens) acc cine tere se tisteaen em 12,500 Required

a. Determine the payback period

b. Determine the accounting rate of return on initial investment

c. Determine the accounting rate of return on average investment LO.1