![M11-4 Calculating Accounting Rate of Return, Payback Period [LO 11-1, 11-2] Blue Marlin Company is considering the purchase o](http://img.homeworklib.com/questions/03811ba0-739b-11ea-a38e-138754247f2b.png?x-oss-process=image/resize,w_560)
Homework Answers
>> Average investment = ( $ 245000 + $ 49000 ) / 2 = $ 147000.
>> Annual rate of return = ( annual net income * 100 / Average investment )
>> Annual rate of return = ( 26950 * 100 / 147000 ) = 18.33 %.
>> Payback period = (Initial investment / Annual cash inflows )
>> Annual cash inflows = $ 26950 + $ 39200 = $ 66150.
>> Payback period = ( $ 245000 / $ 66150 ) = 3.70 years
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