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Exercise 9-18 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 firms services. The sign they are considering has two display areas that can display two different images at the same time and costs $181,200. It is expected to have a useful life of 6 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 $38,500 a year. Electricity to power the sign is expected to be $1,110 per year. Calculate the annual net operating income generated by the new sign. Annual net operating income Calculate the accounting rte of return of the new sign. (Round answer to 2 decimal places, eg, 52.75%.) Accounting rate of return 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
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Net Operating Income S38,500 S1,110 Rental Income Less Electricity Expense Net Operating Income $ 37,390 Caculation of Depreciation Cost of the Sign Life (No. of years) Depreciation per year $181,200 6 S30,200 Accounting Rate of Return Net Operarting Income Depreciation Avg. Accounting Income S37,390 $30,200 $ 7,190 Less Avg Accounting Investment $181,200 Avg. A/c Income Avg. A/c Investment 3.97% AAR:

If the sign is able to generate new business, the accounting rate will increase.

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