Calculate both the payback period and simple rate of return

Reference no: EM133332145

Question: Assume you are considering buying a Food truck to sell food at local events. The equipped truck costs $24,000.00, and has an expected salvage value of $5,000.00 at the end of an expected 10 year life. You think that for each of the first five years you own the machine you can generate gross sales of $6,500.00 per year, and you think cash expenses will average $3,100.00 per year. For the second five years you own the truck, you think you can generate gross sales of $8,500.00 per year, and you think cash expenses will average $2,450.00 per year as you learn more about how to operate it efficiently. Calculate both the Payback Period, and the Simple Rate of Return for this proposed investment, AND explain why the simple rate of return may provide a misleading answer in this instance.

Reference no: EM133332145

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