The Pink Thai Restaurant Is Considering the Purchase of a Second

question 50

Essay

The Pink Thai Restaurant is considering the purchase of a second oven that would accommodate its new take-out business. The oven would cost $17,000, have an estimated $5,000 residual value, and would be kept for six years. Annual net cash inflows would increase by $3,960. Pink Thai uses the straight-line method of depreciation. Using the above facts and the present value factors given below, calculate (a) the payback period (if necessary, round off and carry to one decimal place), (b) the accounting rate of return (if necessary, round off and carry to one decimal place), and (c) the oven's net present value (use parentheses to indicate a negative net present value) based on a 15 percent minimum desired rate of return (if necessary, round to the nearest dollar).
$$\begin{array} { c c c } \text { End af Perind } & \text { Present Value of } \begin{array} { c } \text { Prasient Value af an } \\\text { Anunuit } \\\text { at } 15 \text { percent }\end{array} & \begin{array} { c } \text { at } \\\text { at 15 percent }\end{array} \\1 & .870 & .870 \\2 & .756 & 1.626 \\3 & .658 & 2.284 \\4 & .572 & 2.856 \\5 & .497 & 3.353 \\6 & .432 & 3.785\end{array}$$

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