Boots Boats Inc. (BBI) is reviewing the following investment proposal for 2019:

Initial Investment:

Depreciable Assets $27,740

Working Capital $3,000

Operations (per year for 4 years) :

Cash Receipts $25,000

Cash expenditures $15,000

Disinvestment :

Salvage value of the equipment $2,000

Recovery of working capital $3,000

a) Determine the payback period. (10 marks)

b) Accounting rate of return on initial investment and on average investment. (10 marks)