Lazy River World is considering purchasing a water park in Chattanooga comma Tennessee, for $ 1 comma 950 comma 000. The new facility will generate annual net cash inflows of $ 505 comma 000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10% or more. Management uses a 14% hurdle rate on investments of this nature.

Requirements 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. 2. Recommend whether the company should invest in this project.

Lazy River World is considering purchasing a water park in Chattanooga, Tennessee, for $1,950,000. The new facility will generate annual net cash inflows of $505,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10% or more. Management uses a 14% hurdle rate on investments of this nature. (Click the icon to view the present value annuity table.) Click the icon to view the present value table.) (Click the icon to view the future value annuity table.) (Click the icon to view the future value table.) Read the requirements Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (Round the payback period to one decimal place.) The payback period is 3.9 years. (Round the percentage to the nearest tenth percent.) x i Reference Periods 20% 0.833 1.528 2.106 2.589 2.991 OOO 1% 2% 3% 4% 0.990 0.980 0.971 0.962 1.970 1.9131.886 2.941 2.884 2.829 2.775 3.902 3.808 3.717 3.630 4.853 4.713 4.580 4.452 5.795 5.601 5.417 5.242 6.728 6.230 6.002 7.652 7.020 6.733 8.566 8.162 7.786 7.435 9.471 8.983 8.530 8.111 10.368 9.787 9.2538.760 11.255 10.575 9.954 9.385 11.348 10.635 9.986 12.106 11.296 10.563 13.865 12.849 11.938 11.118 6.472 7.325 Present Value of Annuity of $1 5% 6% 8% 10% 12% 0.952 0.943 0.926 0.9090.893 1.859 | 1.833 1.783 1.736 | 1.690 2.723 2.673 2.577 2.487 2.402 3.546 3.465 3.312 3.170 3.037 4.329 4.212 3.993 3.791 3.605 5.076 4.917 4.623 4.355 4.111 5.786 5.582 5.206 4.868 4.564 6.463 6.210 5.747 5.335 4.968 7.108 6.802 6.247 5.759 5.328 7.722 7.360 6.710 6.145 5.650 8.306 7.887 7.139 6.495 5.938 8.863 8.384 7.536 6.814 6.194 9.394 8.853 7.904 7.103 6.424 9.899 9.295 8.244 7.367 6.628 10.380 9.712 8.559 | 7.606 6.811 14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 | 4.607 4.833 5.029 5.197 5.342 5.468 5.575 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 | 4.656 | 4.793 4.910 5.008 5.092 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 Reference 2.174 2.690 3.127 2.106 2.589 2.991 5.206 3.498 3.812 4.078 4.303 4.494 8.566 9.471 2.9412.884 2.829 2.775 3.902 3.808 3.717 3.630 4.853 4.713 4.580 4.452 5.795 5.601 5.417 5.242 6.728 6.472 6.230 6.002 7.652 7.325 7.020 6.733 8.162 7.786 7.435 8.983 8.530 8.111 10.368 9.787 9.253 8.760 10.575 9.954 9.385 11.348 10.635 9.986 12.106 11.296 | 10.563 12.849 11.938 11.118 18.046 16.351 14.877 13.590 023 19.523 17.413 15.622 808 22.396 19.600 17.292 32.835 27.355 23.115 19.793 2.723 2.673 2.577 3.546 3.465 3.312 4.329 | 4.212 3.993 5.076 4.917 4.623 5.786 5.582 6.463 6.210 5.747 7.108 6.802 6.247 7.722 7.360 6.710 8.306 7.887 7.139 8.8638.384 | 7.536 9.394 8.853 7.904 9.899 9.295 8.244 10.380 9.712 8.559 12.462 11.470 9.818 14.094 12.783 10.675 15.372 13.765 11.258 17.159 15.046 11.925 2.487 | 2.402 3.170 3.037 3.791 3.605 4.355 4.111 4.868 4.564 5.335 4.968 5.759 5.328 6.145 5.650 6.495 5.938 6.814 6.194 7.103 6.424 7.367 6.628 7.606 6.811 8.514 7.469 9.077 7.843 9.427 8.055 9.7798.244 2.322 2.246 2.914 2.798 3.433 3.274 3.889 3.685 4.288 4.039 4.639 | 4.344 4.946 | 4.607 5.216 4.833 5.453 5.029 5.660 5.197 5.842 5.342 6.0025.468 6.142 6.623 5.929 6.873 6.097 7.003 6.177 7.105 6.233 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.870 4.948 4.656 4.793 4.910 5.008 5.092 5.353 5.467 5.517 5.548 5.575 4.997 Reference Periods 16% 5% 1.000 2050 3.153 4.310 5.526 6.802 8.142 12% 1.000 2.120 3.374 4.779 6.353 1% 1.000 2.010 3.030 4.060 5.101 6.152 7.214 8.286 9.369 10.462 11.567 12.683 13.809 8.115 10.089 2% 1.000 2.020 3.060 4.122 5.204 6.308 7.434 8.583 9.755 10.950 12.169 13.412 14.680 15.974 17.293 24.297 32.030 40.568 60.402 9.549 3% 1.000 2.030 3.091 4.184 5.309 6.468 7.662 8.892 10.159 11.464 12.808 14.192 15.618 17.086 18.599 26.870 36.459 47.575 75.401 4% 1.000 2040 3.122 4.246 5.416 6.633 7.898 9.214 10.583 12.006 13.486 15.026 16.627 18.292 20.024 29.778 6% 8% 1.000 1.000 2.060 2.080 3.184 3.246 4.375 4.506 5.637 5.867 6.975 7.336 8.394 8.923 9.897 10.637 11.491 12.488 13.181 14.487 14.972 16.645 16.870 18.977 18.882 21.495 21.015 24 215 23.276 27. 152 36.786 45.762 54.865 73.106 79.058 113.283 154.762259.057 11.027 12.578 14.207 15.917 17.713 19.599 21.579 33.066 47.727 66.439 120.800 10% 1.000 2.100 3.310 4.641 6.105 7.716 9.487 11.436 13.579 15.937 18.531 21.384 24.523 27.975 31.772 57275 98.347 164494 442.593 12.300 14.776 17.549 20.655 24.133 28.029 32. 393 37.280 72.052 133 334 241.333 767.091 14% 1.000 2.140 3.440 4.921 6.610 8.536 10.730 13.233 16.085 19.337 23.045 27 271 32.089 37.581 43.842 91.025 181.871 356.787 1,342.025 18% 1.000 1.000 2. 160 2.180 3.506 3.572 5.066 5.215 6.877 7.154 8.977 9.442 11.414 12.142 14.240 15.327 17.519 19.086 21.321 23.521 25.733 28.755 30.850 34.931 36.786 42.219 43.672 50.818 51.660 60.965 115.380 146.628 249.214 342.603 530.312790.948 2,360.757 4,163.213 20% 1.000 2 200 3.640 5.368 7.442 9.930 12.916 16.499 20.799 25.959 32.150 39.581 48.497 59. 196 72.035 186.688 471.981 1,181.882 7,343.858 14.947 16.097 41.646 22.019 28.243 34.785 48.886 56.085 95.026 Reference Periods | 1% 1.010 1.020 1.030 1.041 1.051 1.062 1.072 1.083 1.094 1.105 3% 1.030 1.061 1.093 1.126 1.159 1.194 1.230 1.267 1.305 1.344 4% 1.040 1.082 1.125 1.170 1.217 1.265 1.316 5% 1.050 1.103 1.158 1.216 1.276 18% 1.180 1.392 1.643 1.939 12% 1.120 1.254 1.405 1.574 1.762 1.974 2.211 16% 1.160 1.346 1.561 1.811 2.100 2436 2% 1.020 1.040 1.061 1.082 1.104 1.126 1.149 1.172 1.195 1.219 1.243 1.268 1.294 1.319 1.346 2288 10% 1.100 1.210 1.331 1.464 1.611 1.772 1.949 2.144 2.358 2.594 2853 2.700 3.185 2826 1.369 2.476 3.759 14% 1.140 1.300 1.482 1.689 1.925 2. 195 2.502 2.853 3.252 3.707 4.226 4.818 5.492 6.261 7.138 3.803 4.435 6% 1.060 1.124 1.191 1.262 1.338 1.419 1.504 1.594 1.689 1.791 1.898 2012 2.133 2.261 2.397 3.207 4.292 5.743 10.286 8% 1.080 1.166 1.260 1.360 1.469 1.587 1.714 1.851 1.999 2.159 2.332 2.518 2.720 2937 3.172 4.661 6.848 10.063 21.725 5.234 1.116 1.384 20% 1.200 1.440 1.728 2074 2.488 2.986 3.583 4.300 5.160 6.192 7.430 8.916 10.699 12.839 15.407 38.338 95.396 237.376 1,469.772 1.340 1.407 1.477 1.551 1.629 1.710 1.796 1.886 1.980 2.079 2.653 3.386 4.322 7.040 1.127 1.423 1.480 1.539 1.601 1.665 1.732 1.801 2.191 2.666 3.243 4.801 3.138 1.426 1.469 1.513 1.558 1.806 2.094 2.427 3.262 1.138 1.149 1.161 1.220 1.282 1.348 1.489 2.773 3.106 3.479 3.896 4.363 4.887 5.474 9.646 17.000 29.960 93.051 3.452 3.797 4.177 6.727 10.835 17.449 45.259 5.117 5.936 6.886 7.988 9.266 19.461 40.874 85.850 378.721 6.176 7.288 8.599 10.147 11.974 27.393 62.669 143.371 750.378 1.486 1.641 1.811 2.208 13.743 26.462 50.950 188.884 i Reference Future Value of $1 Periods 4% 5% 6% 2% 1.020 1.040 1.061 1.082 1.104 1.126 1.149 1.050 1.103 1.158 1.216 1.276 8% 1.080 1.166 1.260 1.360 1.469 14% 1.140 1.300 1.482 1.689 1.925 2. 195 16% 1.160 1.346 1.561 1.811 2.100 2.436 2.826 3.278 1.340 1.407 10% 1.100 1.210 1.331 1.464 1.611 1.772 1.949 2.144 2.358 2.594 1.587 1% 1.010 1.020 1.030 1.041 1.051 1.062 1.072 1.083 1.094 1.105 1.116 1.127 1.138 1.149 1.161 1.220 1.282 1.060 1.124 1.191 1.262 1.338 1.419 1.504 1.594 1.689 1.791 1.898 2012 2 133 1.172 1.477 3% 1.030 1.061 1.093 1.126 1.159 1.194 1.230 1.267 1.305 1.344 1.384 1.426 1.469 1.513 1.558 1.806 2094 2.107 1.040 1.082 1.125 1.170 1.217 1.265 1.316 1.369 1.423 1.480 1.539 1.601 1.665 1.732 1.801 2.191 2.666 3.803 12% 1.120 1.254 1.405 1.574 1.762 1.974 2.211 2476 2.773 3.106 3.479 3.896 4.363 4.887 5.474 9.646 17.000 20 000 1.195 1.219 1.243 1.268 1.294 1.319 1.346 1.486 1.641 1011 3.707 4.411 18% 20% 1.180 1.200 1.392 1.440 1.643 1.728 1.939 2074 2.288 2.488 2.700 2.986 3.185 3.759 4.300 4.435 5.160 5.234 6.192 6.176 7.430 7.288 8.916 8.599 10.699 10.147 12.839 11.974 15.407 27.393 38.338 62.669 95 396 1/2 271 | 727 278 2.853 1.551 1.629 1.710 1.796 1.886 1.980 2.079 2.653 3.386 5.117 1.714 1.851 1.999 2.159 2.332 2.518 2.720 2.937 3.172 4.661 6.848 10 062 2261 2.397 3.207 4.292 6712 3.138 3.452 3.797 4.177 6.727 10.835 17.110 4.226 4.818 5.492 6.261 7.138 13.743 26.462 50 060 5.936 6.886 7.988 9.266 19.461 40.874 05 050 I i Reference Present Value of $1 Periods 18% 20% 0.847 0.833 0.7180.694 0.609 | 0.579 0.516 0.482 | 0.437 0.402 1% 2% 0.990 0.980 0.980 | 0.961 0.971 0.942 0.961 0.924 0.951 0.906 0.942 0.888 0.933 0.871 0.923 0.853 0.914 0.837 0.905 0.820 0.896 0.804 0.887 0.788 0.879 0.773 0.870 0.758 0.861 0.743 0.820 0.673 0.780 0.610 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.554 0.478 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 1625 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 | 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.377 0.295 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0480 0.442 0.417 0.312 0.233 8% 0.926 0.857 0.794 0.735 0.681 | 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.215 0.146 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.149 0.092 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.104 0.059 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.073 0.038 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 | 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.051 0.051 0.024 | 0.370 0.335 0.314 0.279 0.266 0.233 0.225 0.194 0.191 0.162 0.162 0.135 0.137 0.112 0.116 0.093 0.099 0.078 0.084 0.065 0.037 0.026 0.0160.010 oo 1577 0.555 0.456 0.375 Reference Periods 3% 1.000 2.030 3.091 4.184 5.309 14% 1.000 2.140 3.440 4.921 6.610 8.536 18% 1.000 2.180 3.572 5.215 7.154 20% 1.000 2.200 3.640 5.368 7.442 10.730 1% 1.000 2.010 3.030 4.060 5.101 6.152 7.214 8.286 9.369 10.462 11.567 12.683 13.809 14.947 16.097 22.019 28.243 2% 1.000 2.020 3.060 4.122 5.204 6.308 7.434 8.583 9.755 10.950 12.169 13.412 14.680 15.974 17.293 24.297 32.030 4% 1.000 2.040 3.122 4.246 5.416 6.633 7.898 9.214 10.583 12.006 13.486 15.026 16.627 18.292 20.024 29.778 41.646 6.468 7.662 8.892 10.159 11.464 12.808 14.192 15.618 17.086 18.599 26.870 36.459 Future Value of Annuity of $1 5% 6% 8% 10% 1.000 1.000 1.000 1.000 2.050 2.060 2080 2.100 3.153 3.184 3.246 3.310 4310 4.375 4.506 4.641 5.526 5.637 5.867 6.105 6.802 6.975 7.336 7.716 8.142 8.394 8.923 9.487 9.549 9.897 10.637 11.436 11.027 11.491 12.488 13.579 12.578 13.181 14.487 15.937 14.207 14.972 16.645 18.531 15.917 16.870 18.977 21.384 17.713 18.882 21.495 24.523 19.599 21.015 24215 27.975 21.579 23.276 27.152 31.772 33.066 36.786 45.762 57 275 47.727 54.865 73.106 98.347 12% 1.000 2.120 3.374 4.779 6.353 8.115 10.089 12.300 14.776 17.549 20.655 24.133 28.029 32.393 37.280 72.052 133.334 9.930 12.916 16.499 20.799 25.959 16% 1.000 2.160 3.506 5.066 6.877 8.977 11.414 14.240 17.519 21.321 25.733 30.850 36.786 43.672 51.660 115.380 249.214 13.233 16.085 19.337 23.045 27 271 32.089 37.581 43.842 91.025 181.871 9.442 12.142 15.327 19.086 23.521 28.755 34.931 42.219 50.818 60.965 146.628 342.603 32. 150 39.581 48.497 59. 196 72.035 186.688 471.981 Reference Periods 18% 0.847 0.718 0.609 0.516 0.437 1% 2% 0.990 0.980 0.980 0.961 0.971 0.942 0.961 0.924 0.951 | 0.906 0.942 0.888 0.933 0.871 0.923 0.853 0.914 0.837 0.905 0.820 0.896 0.804 0.788 0.879 0.773 0.870 0.758 0.861 0.743 0.820 0.673 0.780 0.610 0.742 0.552 0.672 0.453 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.554 0.478 0.412 0.307 4% 5% 0.962 0.952 0.925 0.907 0.889 0.864 0.855 0.823 0.822 0.784 0.790 0.746 0.760 0.711 0.731 0.677 0.703 0.645 0.676 0.614 0.650 0.585 0.625 0.557 0.601 0.530 0.577 0.505 0.555 0.481 0.456 0.377 0.375 0.295 0.308 | 0.231 0.208 0.142 6% 8% 0.943 0.926 0.890 0.857 0.840 0.794 0.792 0.735 0.747 0.681 0.705 0.630 0.665 0.583 0.627 0.540 0.592 0.500 0.558 0.463 0.527 0.429 0.497 0.397 0.469 0.368 0.442 0.340 0.417 0.315 0.312 0.215 0.2330.146 0.174 0.099 0.097 0.046 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.149 0.092 0.057 0.022 12% 14% 16% 0.893 0.877 0.862 0.797 0.769 0.743 0.712 0.675 0.641 0.636 | 0.592 0.552 0.567 | 0.519 0.476 0.507 0.456 0.410 0.452 0.400 0.354 0.404 0.351 0.305 0.361 0.308 0.263 0.322 0.270 0.227 0.287 0.237 0.195 0.257 0.208 0.168 0.229 0.182 0.145 0.205 0.160 0.125 0.183 0.140 0.108 0.104 0.073 0.051 0.059 0.038 0.024 0.033 0.0200.012 0.0110.005 0.003 0.370 0.314 0.266 0.225 0.191 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.026 0.010 0.004 0.001 0.887 0.162 0.137 0.116 0.099 0.084 0.037 0.016 0.007 0.001