Benson Rentals can purchase a van that costs $69,000; it has an expected useful

Question

Benson Rentals can purchase a van that costs $69,000; it has an expected useful life of three years and no salvage value. Benson uses straight-line depreciation. Expected revenue is $34,592 per year. Assume that depreciation is the only expense associated with this investment.

Required

Determine the payback period. (Round your answer to 1 decimal place.)

Determine the unadjusted rate of return based on the average cost of the investment. (Round your answer to 1 decimal place. (i.e., .234 should be entered as 23.4).)

Explanation / Answer

1 Payback period = 69000/34592= 2.0 years 2 Annual net income=34592-(69000/3)= $11592 Unadjusted rate of return=11592/(69000/2)= 33.6%

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