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Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years.  Their current cost of capital is 10%.  Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457   Required:  Compute the Accounting Rate of Return of the investment

Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years.  Their current cost of capital is 10%.  Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457   Required:  Compute the Accounting Rate of Return of the investment

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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QUESTION 36

  1. Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years.  Their current cost of capital is 10%.  Following are selected factors from tables for 10 years at 10%:

    FV of $1

    FVOA

    PV of $1

    PVOA

    2.59374

    15.93742

    0.38554

    6.14457

     

    Required:  Compute the Accounting Rate of Return of the investment

     

     

       

    14.3%
       

    8%
       

    10%
       

    11.4%

     

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