Solve the accounting rate of return and payback period

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Shah Industries is opening a new factory to make fire alarms. Production capacity is 150,000 alarms per year. The factory will be highly automated so direct labour will be low. The alarms will sell for $15 each and have production costs of $7 at full cost. The factory will cost $18,000,000 and will likely last 20 years before it will have to be completely rebuilt.

Required

Question a) Calculate the payback period in years (to the nearest two decimal places). Show all work.

Question b) Calculate the Accounting Rate of Return. Show all work.

Question c) To be safe, Shah wants to see if it will be able to make their money back within the 20-year life span of the factory if production and sales is only 80% of capacity. Advise Shah and show all work.

Reference no: EM132515204

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