Exercise 10-15A Computing the payback period and unadjusted rate of return for the same investment opportunity LO 10-4 Currie Rentals can purchase a van that costs $200,000; It has an expected useful life of five years and no salvage value. Currie uses straight-line depreciation. Expected revenue is $72,300 per year. Assume that depreciation is the only expense associated with this Investment. Required a. Determine the payback period. (Round your answer to 1 decimal place.) b. Determine the unadjusted rate of return based on the average cost of the Investment. (Round your answer to 1 decimal place. (l.e., .234 should be entered as 23.4.) Answer is complete but not entirely correct. a. 2.8 years Payback period Unadjusted rate of return b. 170.8 96 Exercise 10-6A Determining net present value LO 10-2 Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following table presents the expected cash flows: Year of Operation 2019 2020 2021 2022 Cash Inflow $12,600 19,500 22,200 22,200 Cash Outflow $ 8,700 11,300 12,900 12,900 In addition to these cash flows, Aaron expects to pay $20,900 for the equipment. He also expects to pay $3,100 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment Is expected to have a $1,900 salvage value and a four year useful life. Aaron desires to earn a rate of return of 10 percent. (PV of $1 and PVA of $1) (Use approprlate factor(s) from the tables provided.) Required a. Calculate the net present value of the Investment opportunity. (Negative amount should be indicated by a minus sign. Round Intermediate calculations and final answer to 2 decimal places.) b. Indicate whether the investment opportunity is expected to earn a return that is above or below the desired rate of return and whether it should be accepted. a. Net present value b. Will the return be above or below the cost of capital? Should the investment opportunity be accepted