Compute the payback period

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Reference no: EM132978493

Problem - Lazy River World is considering purchasing a water park in Chattanooga, Tennessee, for $1,950,000. The new facility will generate annual net cash inflows of $505,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10% or more. Management uses a 14% hurdle rate on investments of this nature.

Requirements -

1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment.

2. Recommend whether the company should invest in this project.

Reference no: EM132978493

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