(L.OBJ. 2) Using the payback and accounting rate of return methods to make capital investment decisions [5—10 min]
Suppose White Valley is deciding whether to purchase new accounting software. The payback period for the $27,375 software package is five years, arid the software’s expected life is three years. White Valley’s required rate of return is 12.0%.
Requirement
1. Assuming equal yearly cash flows, what are the expected annual cash savings from the new software?
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