Bristles Hair Salon is considering installing spray-tanning booths. The booths cost $220,000 and have an estimated five-year useful life. Ignore income taxes. The following pro forma income statement is provided:
Required:Bristles would like to recoup its original investment in less than four years. Compute the payback period for the tanning booth investment. Would you recommend that the booths be purchased? Why or why not?Bristles' minimum acceptable unadjusted rate of return is 11%. Compute the unadjusted rate of return on the original investment. Would you recommend that the booths be purchased? Why or why not?

Question

Bristles Hair Salon is considering installing spray-tanning booths. The booths cost $220,000 and have an estimated five-year useful life. Ignore income taxes. The following pro forma income statement is provided:
  Required:Bristles would like to recoup its original investment in less than four years. Compute the payback period for the tanning booth investment. Would you recommend that the booths be purchased? Why or why not?Bristles' minimum acceptable unadjusted rate of return is 11%. Compute the unadjusted rate of return on the original investment. Would you recommend that the booths be purchased? Why or why not?

Bristles Hair Salon Is Considering Installing Spray-Tanning Booths