(L. OBJ. 2) Using the payback and accounting rate of return methods to make capital investment decisions [5—10 min]
Stenback, Co., is considering acquiring a manufacturing plant. The purchase price is $1,300,000. The owners believe the plant will generate net cash inflows of $314,000 annually. It will have to be replaced in seven years.
Requirement
1. Use the payback method to determine whether Stenback should purchase this plant.
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