Key Lock Co. wants to determine if they should expand their business into more locations. Total...

Key Lock Co. wants to determine if they should expand their business into more locations. Total initial costs are $12.5 million, as recorded in the financial statement, which will be depreciated straight-line to 0 over a four- year life. If the projected net income from the project is $1,368,000, $1,935,000, $1,738,000, and $1,310,000 over the four years, what is the project’s average accounting return (AAR)?

Solutions

Expert Solution

Average investment = (Initial investment - last book value) / 2

Average investment = (12,500,000 - 1) / 2

Average investment = 6,250,000

Average income = (1,368,000 + 1,935,000 + 1,738,000 + 1,310,000) / 4

Average income = 1,587,750

average accounting return (AAR) = (Average income / average investment) * 100

average accounting return (AAR) = (1,587,750 / 6,250,000) * 100

average accounting return (AAR) = 25.40%

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Calculate the NPV for the following project. The company wants to determine whether it should expand...

Calculate the NPV for the following project. The company wants to determine whether it should expand and purchase a new piece of equipment (20% CCA Rate). The equipment will cost $100,000, have a useful life of 20 years, and have a projected salvage value of $5,000. By purchasing the equipment, the company can increase its net revenues by $7,500 per year. Using a discount rate of 10% and a tax rate of 30%, should the company purchase the equipment?

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $320,000 January $400,000 April forecast $400,000 December 340,000 February 440,000 March 410,000 Of the firm’s sales, 60 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $620,000 January $700,000 April forecast $550,000 December 640,000 February 740,000 March 560,000 Of the firm’s sales, 30 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $420,000 January $500,000 April forecast $450,000 December 440,000 February 540,000 March 460,000 Of the firm’s sales, 40 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $440,000 January $520,000 April forecast $460,000 December 460,000 February 560,000 March 470,000 Of the firm’s sales, 50 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $540,000 January $620,000 April forecast $510,000 December 560,000 February 660,000 March 520,000 Of the firm’s sales, 30 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $440,000 January $520,000 April forecast $460,000 December 460,000 February 560,000 March 470,000 Of the firm’s sales, 50 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $660,000 January $740,000 April forecast $570,000 December 680,000 February 780,000 March 580,000 Of the firm’s sales, 40 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures: Actual Forecast Additional Information November……. $200,000 January………. $280,000 April Forecast……… $360,000 December……. $262,000 February…….. $320,000 March………... $340,000 Of the firm's sales, 40 percent are for cash and the...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and...

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures: Actual Forecast Additional Information November $560,000 January $640,000 April forecast $520,000 December 580,000 February 680,000 March 530,000 Of the firm’s sales, 50 percent are for cash and the...

Subjects