Is this statement true or false of this financial accounting question? Bright way Technologies plans to purchase a fixed asset for $500,000, with auseful life of 4 years and no residual value. The total expected net income over4 years is $360,000. The expected average rate of return (ARR) is 36%.Is this statement True or False?a. Trueb. False

To determine if the statement is true or false, we can calculate the Average Rate of Return (ARR)…

Answered: Bright way Technologies plans to…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 20E

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(7) The expected average rate of return for a proposed investment of $649,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the 4 years, is?
Suppose that the annual revenues of Alternative 2 is known with certainty. By how much would the estimate of annual net revenues for Alternative 1 have to vary so that the initial decision based on these data would be reversed? MARR is 15% per year.
The management of Nixon Corporation is investigating purchasing equipment that would cost $558,000 and have a 7 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $384,000 per year and cash operating expenses by $221,000 per year. (Ignore income taxes.) Required: Determine the simple rate of return on the investment. (Round your answer to 1 decimal place.) Simple rate of retum %
4.
PQR, Inc., is considering investing $160,000 in a machine that may last 4 years with no residual value. The new machine will generate annual operating income of $60,000 per year for 4 years. What is the Simple rate of return? OA. 12.5% B. 10.5% O C. 14% OD. 15.66%
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Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
(1) Assume that the lease payments were actually 280,000 per year, that Consolidated Leasing is also in the 25% tax bracket, and that it also forecasts a 200,000 residual value. Also, to furnish the maintenance support, it would have to purchase a maintenance contract from the manufacturer at the same 20,000 annual cost, again paid in advance. Consolidated Leasing can obtain an expected 10% pre-tax return on investments of similar risk. What are its NPV and IRR of leasing under these conditions? (2) What do you think the lessors NPV would be if the lease payment were set at 260,000 per year? (Hint: The lessors cash flows would be a mirror image of the lessees cash flows.)
17.
I need to solve for the asset value, but I'm not sure what rate needs to be used in order to solve for NPV, and then Asset Value. Formating & some information is in the picture attached below. Asset Beta= 1.096303 Discount Rate= 0.13372 Working capital to support sales is estimated to be 15.65% of yearly sales for the first 5 years and then is projected to slow to a 4.59% annual growth rate thereafter. The marginal corporate income tax rate is expected to average 23.67% barring any changes to the corporate tax code and the projected annual growth rate of Free Cash Flow (FCF) in the terminal phase is expected to grow approximately 1% more than the current risk-free rate of return indefinitely. Historically, the debt-equity ratio has averaged roughly 116% for which Ljutic A/I Inc.’s current debt level is $39,889,950 with an average maturity of 6 years and an interest rate on this debt averaging 8.175%. Upon a regression analysis, the historical equity Beta was calculated to be…
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Bunnings Ltd is considering to invest in one of the two following projects to buy a new equipment. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 8%. The cash flows of the projects are provided in the image. Required: a) Identify which option of equipment should the company accept based on Profitability Index? b) Identify which option of equipment should the company accept based on discounted pay back method if the payback criterion is maximum 2 years?

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Bright way Technologies plans to purchase a fixed asset for $500,000, with a useful life of 4 years and no residual value. The total expected net income over 4 years is $360,000. The expected average rate of return (ARR) is 36%. Is this statement True or False? a. True b. False