The Snacks Galore is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision: SodaMachinesSnack MachinesInvestment$100,000$150,000Useful life (years)510Estimated annual net income generated over useful life$30,000$18,000Residual value$10,000$5,000Depreciation methodstraight-linestraight-lineIncome tax rate20%20%Required rate of return8%12% Calculate the average rate of return for the snack machines. Select one:a. 24%b. 23.2%c. 43.3%d. 41.9%e. 27.6%

The Accounting Rate of Return (also recognized as the average rate of return) seems to be the…

Answered: The Snacks Galore is looking to expand…

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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The Snacks Galore is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision:

	Soda Machines	Snack Machines
Investment	$100,000	$150,000
Useful life (years)	5	10
Estimated annual net income generated over useful life	$30,000	$18,000
Residual value	$10,000	$5,000
Depreciation method	straight-line	straight-line
Income tax rate	20%	20%
Required rate of return	8%	12%

Calculate the average rate of return for the snack machines.

Select one:

a. 24%

b. 23.2%

c. 43.3%

d. 41.9%

e. 27.6%

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