A)

Malkind Hardware is adding a new product line that will require an investment of $1,454,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $300,000 the first year, $290,000 the second year, and $240,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places.

Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%.)

Average annual operating income	/	Average amount invested	=	ARR
	/		=		%

B)

Consider how Cole Valley Waterfall Park Lodge could use capital budgeting to decide whether the $12,500,000 Waterfall Park Lodge expansion would be a good investment. Assume Cole Valley's managers developed the following estimates concerning the expansion:

Number of additional skiers per day	121 skiers
Average number of days per year that weather conditions
allow skiing at Cole Valley	150 days
Useful life of expansion (in years)	8 years
Average cash spent by each skier per day	$241
Average variable cost of serving each skier per day	82
Cost of expansion	12,500,000
Discount rate	14%

Assume that Cole Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its eight-year life. The average annual net cash inflow from the expansion is expected to be $2,885,850. Compute the payback for the expansion project. Round to one decimal place.

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Payback

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years