Special Decisions and Capital Budgeting: Capital Budgeting

Capital budgeting P25-39B Playtime, Inc.is considering purchasing an amusement park in El Paso, Texas, for S2,000,000. The new facility will generate annual net cash inflows of S520,000 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. Requiremerts 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 recommendation whether the company should invest in this project. (p. 1262)