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Problem 16-17: Using the payback period and unadjusted rate of return to evaluate alternative investment opportunities. Quentin Girordano owns a...
Problem 16-17: Using the payback period and unadjusted rate of return to evaluate alternative investment opportunities. Quentin Girordano owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Giordano to offer frozen yogurt to customers. The machine would cost 4,050 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be 2, 970 and 450 respectively. Alternatively, Mr. Giordano could purchase for 5040 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be 4140 and 1215 respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Required:a.)
