Question

Question 5 View Policies Current Attempt in Progress Payton and Finley Davis run a real estate brokerage firm. They have just moved into a new building and want to add some outdoor digital signage to advertise the firm's services. The sign they are considering has two display areas that can display two different images at the same time and costs $107.800. It is expected to have a useful life of 4 years. In an effort to recoup the cost of the sign, Payton and Finley will rent one display panel to other tenants in the building for $34,600 a year. Electricity to power the sign is expected to be $915 per year. Calculate the annual net operating income generated by the new sign. Annual net operating income $ eTextbook and Media Calculate the accounting rate of return of the new sign. (Round answer to 2 decimal places, e.. 52.75%.) Accounting rate of return e Textbook and Media If the sign is successful in generating new business for the firm, how will the accounting rate of return be affected? If the sign is successful, accounting rate of return will eTextbook and Media

Answer 1

Answer is given below

Accounting rate of return is calculated based on initial and average investment

Annual Net operating income $6,735 $34,600 Rental income Less: Electricity charges Depreciation cost Net Operating Income $915 $26,950 ($107,800/4 years) $6,735 Accounting rate of return-Initial investment Average net income $6,735 Initial investment $107,800 16.25% Accounting rate of return Average net income Average investment $6,735 $53,900 12.50% Average investment is investment value plus salvage value)/2 ($107,800/2) c) If the sign is successful, accounting rate of return will increase