Payback Period and ARR. The John-in-the-Box Store is a fast food restaurant chain. Potential franchisees are given the following revenue and cost information:

Building and equipment $490,000

Annual revenue $520,000

Annual cash operating costs $380,000

The building and equipment have a useful life of 20 years. The straight-line method for depreciation is used. The income tax is 40 percent. Given these facts: (a) What is the payback period? (b) What is the accounting rate of return?

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