1) Assume that a company is considering buying a new piece of equipment for $250,000 that would have a useful life of five years and a salvage value of $30,000. The equipment would generate the following estimated annual revenues and expenses:

Revenues				$	150,000
Less operating expenses:
Commissions	$	15,000
Insurance		5,000
Depreciation		44,000
Maintenance		30,000			94,000
Net operating income				$	56,000

What is the payback period for this investment?

• 2.50 years

• 2.20 years

• 4.46 years

• 3.20 years

What is the simple rate of return for this investment?

• 25.5%

• 22.4%

• 20.4%

• 40.0%