(Answered) Question - a company sells is considering a new site that

Accounting

Question - A company sells is considering a new site that will require a $2 million investment for land acquisition and construction costs. The following operating results are expected:

Sales revenue $980000

Less operating expenses:

Food/supplies $320000

Wages/salaries $180000

Insurance/taxes $40000

Utilities $10000

Depreciation $70000

Operating Income = $360000

Disregard income taxes.

A. If management requires a payback period of four years or less, should the new site be opened?

B. Compute the accounting rate of return on the initial investment.

C. What significant limitation of payback and the accounting rate of return is coverove by the net present value method?

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