Average Rate of Return The average rate of return is another method that does not use present value and is commonly used in making capital investment decisions. Unlike the cash payback method, the average rate of return focuses on income rather than cash flow. Assume that the investment involves an initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: Year 1 - $20,000, Year 2 - $30,000, Year 3 - $40,000, Year 4 - $50,000 and Year 5 - $60,000. Use the minus sign to indicate a net loss. If an amount is zero, enter "0". Year Revenues Expenses Net Income Year 1 Net Income (loss) $ 20,000 v 20,000 30,000 v 10,000 Year 2 Net Income (loss) 20,000 V %3D %3D Year 3 Net Income (loss) 40,000 V 20,000 20,000 V Year 4 Net Income (loss) 50,000 V 20,000 30,000 60,000 v 20,000 40,000 Year 5 Net Income (loss) V Total Net Income (five years) = s 100,000 v 100,000 Average Net Income = 20,000 v 20,000 Average Rate of Return- 20 X % 100,000 X Feodhack

Average Rate of Return The average rate of return is another method that does not use present value and is commonly used in making capital investment decisions. Unlike the cash payback method, the average rate of return focuses on income rather than cash flow. Assume that the investment involves an initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: Year 1 - $20,000, Year 2 - $30,000, Year 3 - $40,000, Year 4 - $50,000 and Year 5 - $60,000. Use the minus sign to indicate a net loss. If an amount is zero, enter "0". Year Revenues Expenses Net Income Year 1 Net Income (loss) $ 20,000 v 20,000 30,000 v 10,000 Year 2 Net Income (loss) 20,000 V %3D %3D Year 3 Net Income (loss) 40,000 V 20,000 20,000 V Year 4 Net Income (loss) 50,000 V 20,000 30,000 60,000 v 20,000 40,000 Year 5 Net Income (loss) V Total Net Income (five years) = s 100,000 v 100,000 Average Net Income = 20,000 v 20,000 Average Rate of Return- 20 X % 100,000 X Feodhack

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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! Required information [The following information applies to the questions displayed below.] Following is information on an investment considered by Hudson Co. The investment has zero salvage value. The company requires a 6% return from its investments. Year 1 Year 2 Initial investment Expected net cash flows ins Year 1 Year 2 Year 3 Compute this investment's net present value. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided. Round all present value factors to 4 decimal places.) Year 3 Totals Amount invested Net present value Investment Al $(390,000) Cash Flow 110,000 106,000 91,000 Present Value of 1 at 6% Present Value
Consider the following project: Period Net cash flow 0 -100 1 0 2 78.55 3 78.55 The internal rate of return is 20%. The NPV, assuming a 20% opportunity cost of capital, is exactly zero. Calculate the expected economic income and economic depreciation in each year. (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) 1 Period 2 3 Change in value (economic depreciation) (20.00) 54.55 65.46 Expected economic income
Please Need Correct Answer with Explanation with calculation
(Related to Checkpoint 6.6) (Present value of annuities and complex cash flows) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: End of Year 1 2 3 4 5 6 7 8 9 10 A $10,000 10,000 10,000 10,000 10,000 Investment Alternatives B $10,000 10,000 10,000 10,000 C $10,000 50,000 10,000 10,000 (Click on the icon in order to copy its contents into a spreadsheet.) Assuming an annual discount rate of 23 percent, find the present value of each investment. 10.000
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