Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the boat is as follows:

Required

Ignore income taxes.
1. Compute the payback period for the boat. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased?
2. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming $10,000 salvage value. Will the boat be purchased if the company's required rate of return is 123 ?

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Purchase cost Annual net cash inflows that will be provided by the boat.. Life of the boat..... ..... $210,000 $ 50,000 10 years