Homework Answers
Accounting rate of return is a metric of capital budgeting used for calculating an investment's profiltability.
- Initial investment: $150,000
- Expected revenue per year: $65,000
- Time frame: 5 years
- ARR calculation: $65,000 (annual revenue) / $150,000 (initial cost)
- ARR = 0.43 or 43% (0.43 * 100)
OPTION B is the correct answer - 43%
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Go to page 2 Fill in the blanks. Diane Manufacturing Company is considering investing $500,000 in new equipment with an estimated useful life of 10 years and no salvage value. The equipment is expected to produce $320,000 in cash inflows and $200,000 in cash outflows annually. The company uses straight-line depreciation, and has a 30% tax rate. (ALT Exercise A from text publisher) Calculate the Accounting Rate of Return: Accounting rate of return = Annual after-tax net income/Annual average investment
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You are considering purchasing a CNC machine which costs $150,000. This machine will have an estimated service life of 12 years with a net after-tax salvage value of $15,000. Its annual after-tax operating and maintenance costs are estimated to be $54,000. To expect an 16% rate of return on investment, what would be the required minimum annual after-tax revenues? 5 Click the icon to view the interest factors for discrete compounding when i = 16% per year. The required minimum...
2. Professional Properties is considering remodeling the office building it leases to Heartland Insurance. The remodeling costs are estimated at $3.4 million. If the building is remodeled, Heartland Insurance has agreed to pay an additional $820,000 a year in rent for the next 5 years. The required return is 15 percent. What is the benefit of the remodeling project to Professional Properties? Should Professional Properties remodel the offce building?
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