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P25-398 Playtime, Inc. is considering purchasing an amusement park in El Paso, Texas, for $2,000,000. The new facility will generate annual net cash inflows of
P25-398 Playtime, Inc. is considering purchasing an amusement park in El Paso, Texas, for $2,000,000. The new facility will generate annual net cash inflows of $520,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have a residual value of $200,000. The company uses straight-line depreciation, and its stockholders demand an annual return of 12% on investments of this nature, Requirements 1. Compute the payback period (p. 1267), the accounting rate of return (p. 1269), and the net present value (pp. 1270-1273) of this investment. 2. Make a recomniendation whether the company should invest in this project. (p. 1262)
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