Midway Printing Co. is considering the purchase of new electronic printing equip

Question

Midway Printing Co. is considering the purchase of new electronic printing equipment. The new equipment would allow Midway to increase its annual before-tax profit by $118,000. Midway has a 30 percent tax rate. Other information about this proposed project follows:

 

  
rev: 02-28-2011

Calculate Midway's annual rate of return.(Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Requirement 2:

 

      Initial investment $410,000     Useful life 5 years     Salvage value $80,000  

Explanation / Answer

1.Accounting Rate of Return= Expected Annual Net income/Average Investment                                         = $82,600/490,000                                         = 0.16 2. Payback period = Cost of capital investment/Net Annual cash flow                              =$410,000/82,600                                                        = 4.96 years

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