Crazy Eight Kolaches owns a chain of breakfast eateries. The company is considering an investment opportunity costing $8,000,000. The investment would yield annual net cash inflows of $1,500,000 for the next eight years. The estimated residual value of the investment is $800,000. Crazy Eight uses straight-line depreciation and requires a payback period of fewer than seven years and an annual rate of return of 8%.

1. What is the payback of the proposed investment?

5.33 years

8000000/1500000

2. What is the accounting rate of return (ARR) of the proposed investment?

13.64%

3. What is the net present value (NPV) of the proposed investment?

$1,052,500

4. What is the internal rate of return (IRR) of the proposed investment (to the nearest whole percent)?

10%