ABC Company wants to purchase a new line of machinery. Two (2) models are available, one (1) has a slightly higher capacity than the other. The costs and expected benefits are as follows: Machine X Machine Y Acquisition cost 80,000.00 150,000.00 Estimated useful life 5 Profit before depreciation Year 1 50,000.00 50,000.00 Year 2 50,000.00 50,000.00 Year 3 30,000.00 60,000.00 Year 4 20,000.00 60,000.00 Year 5 10,000.00 60,000.00 Required: Using Accounting Rate of Return, which equipment should be selected by ABC Company? Show your solution.
ABC Company wants to purchase a new line of machinery. Two (2) models are available, one (1) has a slightly higher capacity than the other. The costs and expected benefits are as follows: Machine X Machine Y Acquisition cost 80,000.00 150,000.00 Estimated useful life 5 Profit before depreciation Year 1 50,000.00 50,000.00 Year 2 50,000.00 50,000.00 Year 3 30,000.00 60,000.00 Year 4 20,000.00 60,000.00 Year 5 10,000.00 60,000.00 Required: Using Accounting Rate of Return, which equipment should be selected by ABC Company? Show your solution.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC Company wants to purchase a new line of machinery. Two (2) models are available, one (1) has a slightly
higher capacity than the other. The costs and expected benefits are as follows:
Machine X
Machine Y
Acquisition cost
80,000.00
150,000.00
Estimated useful life
5
Profit before depreciation
Year 1
50,000.00
50,000.00
Year 2
50,000.00
50,000.00
Year 3
30,000.00
60,000.00
Year 4
20,000.00
60,000.00
Year 5
10,000.00
60,000.00
Required: Using Accounting Rate of Return, which equipment should be selected by ABC Company? Show
your solution.
Transcribed Image Text:An asset with a cost of P1,200,000 is to be depreciated over 10 years with residual value. Profit after
depreciation for the first five (5) years are as follows:
Year 1
120,000.00
Year 2
170,000.00
Year 3
280,000.00
Year 4
370,000.00
Year 5
80,000.00
Required: Compute for the Payback Period to the nearest month.
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