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Cody’s Retail Cody’s Retail is considering an investment in a delivery truck

Accounting

Cody’s Retail

Cody’s Retail is considering an investment in a delivery truck. Cody 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. Cody will depreciate the truck using the straight-line method.

  1. Refer to Cody's Retail. What is the accounting rate of return on the truck investment (based on average profit and average investment)?
      1. 25.0 %
      2. 50.0 %
      3. 16.7 %
      4. 8.3 %
  2. Refer to Cody's Retail. What is the payback period on the investment in the new truck?

a.               12  years

      1. 6  years
      2. 4  years
      3. 2  years

 

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