(Appendix 2) Allison Aftercare operates a rehabilitation center for physically dis¬ abled individuals. The company is considering the purchase of a new piece of equipment that costs $750,000, has a life of 5 years, and has no salvage value. The company depreciates its assets on a straight-line basis. The expected annual cash flow on a before-tax basis for this piece of equipment is $250,000. Allison requires that an investment be recouped in less than 5 years and have an ac¬ counting rate of return (pretax) of at least 18 percent.

a. Compute the payback period and the accounting rate of return for this piece of equipment (ignore taxes).

b. Is the equipment an acceptable investment for Allison? Explain.