Question

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 firm’s services. The sign they are considering has two display areas that can display two different images at the same time and costs $178,200. 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 $37,900 a year. Electricity to power the sign is expected to be $1,080 per year. Calculate the annual net operating income generated by the new sign. Annual net operating income $ 5570 LINK TO TEXT LINK TO VIDEO Calculate the accounting rate of return of the new sign. (Round answer to 2 decimal places, e.g. 52.75%.) Accounting rate of return % LINK TO TEXT LINK TO VIDEO 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 .

Answer 1

1
Annual revenues	37900
Less: Annual Electricity	1080
Less: Annual Depreciation	29700	=178200/6
Annual net operating income	7120
2
Annual net operating income	7120
Divide by Investment cost	178200
Accounting rate of return	4.00%
3
If the sign is successful, accounting rate of return will increase.