Jimmy's Retail Jimmy's Retail is considering an investment in a delivery truck

Business Feb 24, 2021

Jimmy's Retail

Jimmy's Retail is considering an investment in a delivery truck. Jimmy has found a used truck that he can purchase for $8,000. He estimates the truck would last six years and increase his store's net cash revenues by $2,000 per year. At the end of six years, the truck would have no salvage value and would be discarded. Jimmy will depreciate the truck using the straight-line method.

1. Refer to Jimmy's Retail. What is the accounting rate of return on the truck investment (based on average profit and average investment)?

2. Refer to Jimmy's Retail. What is the payback period on the investment in the new truck?

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