Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternativ One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,98 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expense associated with selling yogurt are expected to be $6,030 and $890, respectively. Alternatively, Mr. Fitch could purchase for $9,720 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with sellin cappuccino are expected to be $8,300 and $2,310, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. (Round your answer
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternativ One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,98 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expense associated with selling yogurt are expected to be $6,030 and $890, respectively. Alternatively, Mr. Fitch could purchase for $9,720 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with sellin cappuccino are expected to be $8,300 and $2,310, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. (Round your answer
Excel Applications for Accounting Principles
4th Edition
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Gaylord N. Smith
Chapter26: Capital Budgeting (capbud)
Section: Chapter Questions
Problem 1R
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![Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives.
One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,980
and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses
associated with selling yogurt are expected to be $6,030 and $890, respectively.
Alternatively, Mr. Fitch could purchase for $9,720 the equipment necessary to serve cappuccino. That equipment has an expected
useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling
cappuccino are expected to be $8,300 and $2,310, respectively.
Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.
Required
a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. (Round your answers to
2 decimal places.)
Payback period
Unadjusted rate of return
Alternative 1
years
%
Alternative 2
years
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe3a74b4d-94d5-4efa-a2b6-25f8cd8a9b81%2Ff91f0cb0-92b0-4956-a308-39bff6bf400d%2Fxbgd6ue_processed.png&w=3840&q=75)
Transcribed Image Text:Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives.
One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,980
and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses
associated with selling yogurt are expected to be $6,030 and $890, respectively.
Alternatively, Mr. Fitch could purchase for $9,720 the equipment necessary to serve cappuccino. That equipment has an expected
useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling
cappuccino are expected to be $8,300 and $2,310, respectively.
Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.
Required
a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative. (Round your answers to
2 decimal places.)
Payback period
Unadjusted rate of return
Alternative 1
years
%
Alternative 2
years
%
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