Question

Rego and Associates plans to invest $1,200,000 in modernizing their call centers. They expect productivity to increase and generate 8,000 more billable hours annually. The current bill rate is $50 per hour. Rego and Associates does not include depreciation or taxes when computing payback or accounting rate of return. The effect of the investment on productivity will last for over five years, although the effects become harder to predict for beyond five years. The company uses a discount factor of 10% on its capital projects. Required: a. What is the payback period on this project? years b. What is the modified payback period on this project? (Use Table 1 from Appendix B, and round your final answer to 2 decimal places, e.g. 5.25 years.) years c. What is the project's accounting rate of return? Ignore taxes. (Round your answer to two decimal places, e.g. 58.74%.) olo

Answer 1

La) Computation of the paubacle paid payback peiod Inttal Gnuestnoent Annualnet cashnlows Annual net aashGnpeocos 8000 hoursx 50 per hour 44.00.000 payback penod 12,00.O00 E 3years bComputation of modified period For thspaurpose calcelate present value ap cash aploros Pirst Loe habe to

year CashPlaos pe@ Lol present alee op cashinelo 363600 O.9090 8264P 330560 300520 273200 248260 1516240 pO0 000 2 4513 O 6830 6209 3 5 modiPiea paytbact periadl Cost recovered GnPull year + C2recovered eost cash Plos deingthe year years +205220 273 202 3.5 yrars 23+0 5 3.15years 0adified pabeck period

compuetation ap accocnteng rate of retun CARR) ARR Net annueal cash fnelaos xi00 Tnftial Gnvestmen 12O0000 33-33 =33.2341 Accocanting rate of retur Note pve E tAme period O.9090