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Ener- go is considering buying a new water treatment system for its plant in Austin, Texas. The company screens its potential capital investments using the payback and accounting rate of return methods. If a potential investment has a payback of less than seven years and a minimum 15% accounting rate of return, it will be considered further. The data for the water treatment system follow: (Click the icon to view the water treatment system data.) Read the requirements. Requirement 1. Compute the water treatment system's payback. (Round your answer to one decimal place, X.X.) = Payback years Requirement 2. Compute the water treatment system's ARR. (Round the percentage to the nearest tenth percent, X.X%.) = ARR % Requirement 3. Should Ener-go turn down this investment proposal or consider it further? The water treatment system proposal The payback is seven years, and the accounting rate of return is 15%. Ener- go should the proposal. $ 52,800 0 Cost of water treatment system Estimated residual value Estimated annual net cash inflow (each year for 8 years) from anticipated environmental cleanup savings 11,000 Estimated useful life 8 years The water treatment system proposal The payback is seven years, and the accounting rate of return is 15%. Ener- go should fails both initial screening tests. passes both initial screening tests. passes only the ARR test. passes only the payback test

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