What is the project average accounting return? You're trying to determine whether to expand yourbusiness by building a new manufacturing plant. Theplant has an installation cost of $11.6 million, whichwill be depreciated straight-line to zero over its four-year life.If the plant has projected net income of $1,814,300,$1,867,600, $1,836,000, and $1,289,500 over thesefour years, what is the project's average accountingreturn (AAR)?

Step 1: Definition of Average Accounting Return (AAR)The Average Accounting Return (AAR) is a…

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EB: Caduceus Company is considering the purchase of a new piece of factory equipment that will cost...

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Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.4 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,794,300, $1,847,600, $1,816,000, and $1,269,500 over these four years, respectively, what is the project's average accounting return (AAR)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Average accounting return 14.75%
You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.8 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,834,300, $1,887,600, $1,856,000, and $1,309,500 over these four years, respectively, what is the project’s average accounting return (AAR)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $18.6 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,815,000, $2,145,000, $2,034,000, and $1,326,000 over these four years, what is the project’s average accounting return (AAR)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $20.2 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,895,000, $2,185,000, $2,114,000, and $1,366,000 over these four years, what is the project’s average accounting return (AAR)? Thank you for your help appreciate it
You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $23 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $2,035,000, $2,255,000, $2,254,000, and $1,436,000 over these four years, what is the project's average accounting return (AAR)? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Average accounting return %
You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $17.8 million, which will be depreciated straightline to zero over its four-year life, fthe plant has projected net income of $1,775,000, 52,125,000, 1,994,000, and §1,306,000 over these four years, what s the project’s average accounting return (AARY? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Average accounting return %
3. You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.1 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,764,300, $1,817,600, $1,786,000, and $1,239,500 over these four years, respectively, what is the project’s average accounting return (AAR)? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Average accounting return % part of number 5: What is the NPV of Projects X and Y at discount rates of 0 percent, 15 percent, and 25 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
A manufacturer wants to introduce new factory equipment that requires machinery to be purchased today for $120 million. This new machine will last for five years, and will be depreciated straight-line to a value of zero at the end of year five. The extra savings from the new machine are expected to produce project inflows of $47 million per year, beginning one year from today, for five consecutive years. The machine does carry extra costs such that project outflows will be $9 million per year, beginning one year from today, for five consecutive years. If the firm’s tax rate is 30% and the required rate of return is 13%, which of the following comes closest to the NPV of the new equipment project? Select one: a. $1.84 million b. $8.13 million c. ($1.12) million d. ($3.96) million e. $4.92 million
We are evaluating a project that costs $820,000, has a life of 7 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 159,000 units per year. Price per unit is $43, variable cost per unit is $28, and fixed costs are $833,120 per year. The tax rate is 25 percent, and we require a return of 14 percent on this project. 1a. Calculate the accounting break-even point. Break-even point 1b. What is the degree of operating leverage at the accounting break-even point? DOL 2a. Calculate the base-case cash flow. Cash flow

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