Tidal WaveTidal Wave

is considering purchasing a water park in

Atlanta comma GeorgiaAtlanta, Georgia,

for

$ 2 comma 200 comma 000$2,200,000.

The new facility will generate annual net cash inflows of

$ 520 comma 000$520,000

for

tenten

years. Engineers estimate that the facility will remain useful for

tenten

years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of

1212%

or more. Management uses a

1010%

hurdle rate on investments of this nature.

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Read the requirements

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.

Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimalplace.)

The payback period is

years.

(Round the percentage to the nearest tenth percent.)

The ARR (accounting rate of return) is

%.

(Round your answer to the nearest whole dollar.)

Net present value $

The IRR (internal rate of return) is between

16% and 18%

20% and 22%

22% and 24%

18% and 20%

.

Requirement 2. Recommend whether the company should invest in this project.

Recommendation:

Do not invest in the new facility.

Invest in the new facility.