1. Payback Period

Abbey Manufacturing is considering an investment in a new automated order-processing system. The new system requires an investment of $2,400,000 and either has:

a. Even cash flows of $200,000 per year or

b. The following expected annual cash flows: $300,000, $300,000, $800,000, $800,000, and $200,000.

Required:

Calculate the payback period for each case.

2. Accounting Rate of Return

Vanderhoort Company invested $10,490,000 in a new product line. The life cycle of the product is projected to be seven years with the following net income stream: $200,000, $600,000, $1,000,000, $1,200,000, $1,600,000, $2,200,000, and $1,600,000.

Required:

Calculate the ARR. Enter your answer as a decimal, do not convert to a percent. Round your answer to two decimal places.