The Golden Triangle Theater is a nonprofit enterprise in downtown Pittsburgh. The board of directors is considering an expansion of the theaters seating capacity, which will entail significant renovations to the existing facilities. The board has been promised by the city government that in five years the city will build a new building for the theater, so the proposed expansion is only a temporary solution to the theaters strained seating capacity. The seating expansion project will cost $120,000. The following table lists the incremental ticket revenue, the incremental operating expenses, the depreciation expense, and the incremental operating income over the five-year life of the investment expected as a result of the theater expansion. The theaters revenue and operating expenses are in cash. Thus, depreciation is the only noncash expense. As a nonprofit enterprise, the theater company is not subject to income taxes.

Year	Incremental Revenue			Incremental Operating Expenses			Net Incremental Cash Flow			Annual Straight-Line Depreciation
1	$	70,000		$	30,000		$	40,000		$	24,000
2		72,000			32,000			40,000			24,000
3		74,000			34,000			40,000			24,000
4		76,000			38,000			38,000			24,000
5		78,000			41,000			37,000			24,000

Required:
1.	Compute the payback period for the proposed expansion of the theaters seating capacity.

2.	Compute the projects accounting rate of return using the projects initial investment. (Round your "Percentage" answer to 1 decimal place (i.e., .1234 should be entered as 12.3).)

3.	Compute the projects accounting rate of return using the projects average investment.

4.

The payback and discounted-cash-flow methods take into account the time value of money, whereas the accounting-rate-of-return method does not.

	False
	True

5.

Suppose the chairperson of the theaters board, who was formerly a managerial accountant, has calculated the seating expansion projects internal rate of return to be lower than the projects accounting rate of return. Moreover, the theaters cost of acquiring expansion capital is above the expansion projects internal rate of return but below its accounting rate of return. As a champion of the theater, and a strong proponent of the expansion, the board chairperson has decided to present only the projects accounting rate of return to the board for its approval of the project. Is this ethical on the part of the boards chairperson?

	Yes
	No