Question

A)

Malkind Hardware is adding a new product line that will require an investment of $1,454,000. Managers estimate that this investment will have a​ 10-year life and generate net cash inflows of $300,000 the first​ year, $290,000 the second​ year, and $240,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places.

Select the​ formula, then enter the amounts to calculate the ARR​ (accounting rate of​ return) for the new product line.​ (Round ARR to the nearest hundredth percent​ [two decimal​ places], X.XX%.)

Average annual operating income	/	Average amount invested	=	ARR
	/		=		%

B)

Consider how Cole Valley Waterfall Park Lodge could use capital budgeting to decide whether the $12,500,000 Waterfall Park Lodge expansion would be a good investment. Assume Cole ​Valley's managers developed the following estimates concerning the​ expansion:

Number of additional skiers per day	121 skiers
Average number of days per year that weather conditions
allow skiing at Cole Valley	150 days
Useful life of expansion (in years)	8 years
Average cash spent by each skier per day	$241
Average variable cost of serving each skier per day	82
Cost of expansion	12,500,000
Discount rate	14%

Assume that Cole Valley uses the​ straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its eight​-year life. The average annual net cash inflow from the expansion is expected to be $2,885,850. Compute the payback for the expansion project. Round to one decimal place.

	/		=	Payback
	/		=		years

Answer 1

A. ARR Formula = Average Accountig Profit / Average Investment Year Cawn Annual Cash Inflows $3,00,000.00 $2,90,000.00 $2,40,000.00 $2,40,000.00 $2,40,000.00 $2,40,000.00 $2,40,000.00 $2,40,000.00 $2,40,000.00 $2,40,000.00 $25,10,000.00 10 Total Average Accounting Profit = Total Annual Cash Inflows / Number of years Average Accounting Profit $2,51,000.00 Initial Investment Average Accounting Profit ARR =b/a 17.26% $14,54,000.00 $2,51,000.00 As Per HOMEWORKLIB POLICY - When more than one question is asked in a single question the expert is required to answer only first question