Accounting Rate of Return

Eyring Company invested $7,500,000 in a new product line. The life cycle of the product is projected to be 7 years with the following net income stream: $300,000, $300,000, $500,000, $900,000, $1,000,000, $2,100,000, and $1,200,000.

Required:

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

Payback Period

Ventura Manufacturing is considering an investment in a new automated manufacturing system. The new system requires an investment of $3,000,000 and either has:

1. Even cash flows of $750,000 per year or
2. The following expected annual cash flows: $375,000, $375,000, $1,000,000, $1,000,000, and $250,000

Required:

Calculate the payback period for each case.

a.	years
b.	years