Marcus & Tyler sells frozen custard and sandwiches. It is considering a new site that will require a $2 million investment for land acquisition and construction costs. The following operating results are expected:

Sales Revenue		$ 980,000
Less operating expenses:
Food & Supplies	$ 320,000
Wages & Salaries	180,000
Insurance	40,000
Utilities	10,000
Depreciation	70,000	620,000
Operating income		$ 360,000

Disregard income taxes.

Required:

1. If management requires a payback period of four years or less, should the new site be opened? Why?
2. Compute the accounting rate of return on the initial investment.
3. What significant limitation of payback and the accounting rate of return is overcome by the net-present-value method?