Clancy Company is considering the purchase of equipment for $100,000. The equipment will expand the company's production and increase revenue by $30,000 per year. Annual cash operating expenses will increase by $8,000. The equipment's useful life is 10 years with no salvage value. Clancy uses straight-line depreciation. The income tax rate is 35%. What is the average rate of return on the investment? Do not use negative signs with your answers.

Clancy Company is considering the purchase of equipment for $100,000. The equipment will expand the company's production and increase revenue by $30,000 per year. Annual cash operating expenses will increase by $8,000. The equipment's useful life is 10 years with no salvage value. Clancy uses straight-line depreciation. The income tax rate is 35%. What is the average rate of return on the investment? Do not use negative signs with your answers.

Name: Average Rate of ReturnClancy Company is considering the purchase of e
Uploaded: 2024-03-05T11:50:36.000Z
Channel: Bartleby
Description: Average Rate of ReturnClancy Company is considering the purchase of equipment for $100,000. The equipment will expand the company's production andincrease revenue by $30,000 per year. Annual cash operating expenses will increase by $8,000. The equip

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Fargo Corp, is considering the purchase of a new pilece of equipment The equipment costs $51,400 and…

A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: The Valentine Company has decided to buy a machine costing $20,000. Estimated cash savings from…

A: RR is also known as Net Present Value. It is a capital budegting technqiues which helps in decision…

Q: Newport Corp. is considering the purchase of a new piece of equipment. The cost savings from the…

A: Initial cost (C) = $924000 Annual increase in cashflow (A) = $251020 n = 6 years Let r = Accounting…

Q: Terry Malloy is trying to decide whether his shipping company should invest in a new boat. The new…

A: IRR, or Internal Rate of Return, is a financial measure utilized to assess investment profitability.…

Q: A machine that costs $9,350 is expected to operate for 11 years. The estimated salvage value at the…

A: The IRR is the investment discount rate that corresponds to the difference between the original…

Q: Your firm is considering investing in a new capital project that requires an initial investment of…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: (Ignore income taxes in this problem) Your Corporation is considering the purchase of a machine that…

A: The internal rate of return (IRR) is a discounting cash flow technique which gives a rate of return…

Q: Moda Produce is considering the purchase of a new machine to replace the existing asset. The current…

A: There will be net proceeds ,that is , Cash inflow on sale of old machine. Initial investment outlay…

Q: fe of 4 years and no salvage value. Annual revenues would incre mcrease by $41,000. Vaughn uses the…

A: The annual rate of return, which is typically expressed as a percentage, is a metric used to assess…

Q: Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $432,605,…

A: IRR is a rate at which the present value of cash inflows is equal to the present value of cash…

Q: You are considering buying a new tractor that costs $275,000 that is expected to last five years.…

Q: Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $325,526,…

A: The internal rate of return is the predicted yearly rate of growth from an investment. Business…

Q: Calculate the average rate of return on the investment.

Q: 2. Super Apparel wants to replace an old machine with a new one. The new machine would increase…

A: The objective of the question is to calculate the Accounting Rate of Return (ARR) for the new…

Q: Osprey Company is considering purchasing a new summer camp in the mountains of North Carolina for…

Q: 1. Your company is considering a new computer system initially costing $1.25 million. It will save…

A: Step 1: Compute for the annual after tax cash savings Annual after tax cash savings = annual…

Q: Quorum Corp. wants to replace a 5-year-old machine with a new machine that is more efficient. The…

A: Solution:- Calculation of the cash flow impact from the sale of the old machine on the initial…

Q: 2. Super Apparel wants to replace an old machine with a new one. The new machine would increase…

A: The objective of the question is to calculate the Accounting Rate of Return (ARR) for the new…

Q: Hello. Need help with the solution to question. Calculate the annual straight-line depreciation…

A: Solution:- Depreciation means the cost of wear and tear of an asset. In case of straight line method…

Q: A firm is considering purchasing equipment that will reduce annual costs by P 40,000. The equipment…

A: The Equivalent annual cost method takes the initial cost of the asset, operating costs, and…

Q: What is the NPV assuming a 12% rate of return. (ignore Tax) Bramble Inc. is considering modernizing…

A: The net present value (NPV) technique is a method of capital budgeting in which all the present…

Q: 2. Super Apparel wants to replace an old machine with a new one. The new machine would increase…

A: The objective of the question is to calculate the Accounting Rate of Return (ARR) for the new…

Q: Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can…

A: Cash flows may be cash inflows and cash outflows for the business. Cash inflows means incoming of…

Q: Van Nuys Company is considering the purchase of a new machine which will cost $7,370. The machine…

A: Given, Purchase cost = $ 7370 Annual cash flows: Revenue = $ 4000 Cost = $ 2000 Net Cash flows…

Q: Your firm is considering investing in a new capital project that requires an initial investment of…

A: Initial investment = $8,000,000Salvage value = $120,000Annual cash flow = $225,000Useful life = 4…

Q: A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The…

A: Internal rate of return(IRR) is the rate that equates the present value of cash inflows with the…

Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

Topic Video

Question

Average Rate of Return
Clancy Company is considering the purchase of equipment for $100,000. The equipment will expand the company's production and
increase revenue by $30,000 per year. Annual cash operating expenses will increase by $8,000. The equipment's useful life is 10 years with
no salvage value. Clancy uses straight-line depreciation. The income tax rate is 35%. What is the average rate of return on the investment?
Do not use negative signs with your answers.
Increase in revenue
Increase in expenses
Pretax income from investment
Income tax expense
Net income from investment
Round answer to the nearest whole percentage, if applicable.
Average rate of return on investment
%
Check

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Meaning of average rate of return

VIEW

Step 2: Calculation of average rate of return

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and no salvage value. The machine will lower operating costs by $18,000 per year. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company's required rate of return is 17% and the net present value of the investment before considering the qualitative benefits is $(29,404), the minimum dollar value per year that must be provided by the machine's qualitative benefits to justify the $100,000 investment is closest to: Multiple Choice O O о O $7,787. $8,247. $7,497. $8,067.
A machine that costs $8,000 is expected to operate for 10 years. The estimated salvage value at the end of 10 years is $0. The machine is expected to save the company $1,554 per year before taxes and depreciation. The company depreciates its assets on a straight-line basis and has a marginal tax rate of 35 percent. What is the internal rate of return on this investment?
Daily Enterprises is purchasing a $10.2 million machine. It will cost $51,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $3.9 million per year along with incremental costs of $1.5 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are $ (Round to the nearest dollar.)
Tidal Wave is considering purchasing a water park in Fort Worth, Texas, for $2,100,000. The new facility will generate annual net cash inflows of $495,000 for ten years. Engineers estimate that the facility will remain useful for ten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 12% or more. Management uses a 10% hurdle rate on investments of this nature. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) Read the requirements. (Click the icon to view the present value table.) (Click the icon to view the future value table.) Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.) The payback period (in years) is (Round the…
Belmont Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $290,000. The equipment will have an initial cost of $1,000,000 and have an 8 year life. If there is no salvage value of the equipment, what is the accounting rate of return? Multiple Choice 21.5% 29.0% 58.0% 24.0%
The management of Nixon Corporation is investigating purchasing equipment that would cost $550,000 and have a 7 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $380,000 per year and cash operating expenses by $219,000 per year. (Ignore income taxes.) Required: Determine the simple rate of return on the investment. (Round your answer to 1 decimal place.)
Daily Enterprises is purchasing a $9.6 million machine. It will cost $45,000 to transport and install the machine. The machine has a depreciable life of 5 years and will have no salvage value. The machine will generate incremental revenues of $4.2 million per year along with incremental costs of $1.2 million per year. If Daily's marginal tax rate is 28%, what are the incremental earnings (net income) associated with the new machine?
A mine is for sale for $240,000. It is believed that the mine will produce a profit of $65,000 the first year, but the profit will decline by $5,000 a year after that, eventually reaching zero, whereupon the mine will be worthless. What rate of return would this $240,000 investment produce for the purchaser of the mine?
ff
A corporation is considering a proposal for the purchase of a machine that will save $130,000 per year before taxes. The cost of operating the machine. including maintenance, is $20,000 per year. The machine will be needed for five years after which it will have a zero salvage value. MACRS depreciation will be used. assuming a three-year class life. The marginal income-tax rate is 40%. If the firm wants 12% IRR after taxes, how much can it afford to pay for this machine?
Daily Enterprises is purchasing a $10.3 million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.3 million per year along with incremental costs of $1.3 million per year. Daily's marginal tax rate is 21%. You are forecastin incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $ (Round to the nearest dollar.)