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Old School Corporation is reviewing its method of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $
Old School Corporation is reviewing its method of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $ investment in a machine that had an estimated useful life of five years and an estimated salvage value of $ The cash flow from the new machine was expected to increase net income before depreciation expense by $ per year. OldSchool' current policy for approving a new investment is that it has a rate of return of and a payback period of three years or less.
Required:
a Calculate the accounting rate of return on this investment for the first year. Assume straightline depreciation.
b Calculate the payback period for this investment.
Note: For all requirements, round your final answers to decimal places.
tablea Accounting rate of return,,
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