Martice Smith and Associates is considering investing $5,000,000 in a new motel and has predicted the following income stream over its 10-year life
The motel is expected to have no salvage value at the end of its 10-year life.
1. Using the ARR method, what is the rate of return for this project?
2. If Martice Smith and Associates requires 35 percent return on its investment, should this motel be purchased?