Question

In: Finance

A project has an initial cost of $27,000 and a three year life. The company uses...

A project has an initial cost of $27,000 and a three year life. The company uses straight line depreciation to a book value of zero over the life of the project. The project net income from the projects is $1,600, $2,200, and $1,700 a year for the next three years, respectively. What is the average accounting return?

Solutions

Expert Solution

Income reported is a net income so there is no need to deduct again depreciation from the net income.
Average income = ( $ 1600 + $ 2,200 + $ 1700 ) / 3 = $                    1,833.33
Investment Amount = $                       27,000
Average Accounting Retrun = Average income / Initial investment
Average Income = $                    1,833.33
Divide By "/"By
Initial investment $                       27,000
Average Accounting Retrun =                         0.06790
Average Accounting Retrun in % 6.79%
Answer = Average accounting return = 6.79%

jeff jeffy answered 3 years ago
Next > < Previous

Related Solutions

Consider the project where the initial cost is $200,000, and the project has a 5-year life....
Consider the project where the initial cost is $200,000, and the project has a 5-year life. There is no salvage. Depreciation is straight-line (Depreciation = 200,000/5 = 40,000) Unit Sales = 6000, Price per unit = $80 (Sales = 6,000 x 80) Variable cost per unit = $60 (Variable Costs = 6,000 x 60)The required return is 12%, and the tax rate is 21%  What are the cash flow each year, NPV and IRR in each case, if we...
Consider a project with a 6-year life. The initial cost to set up the project is...
Consider a project with a 6-year life. The initial cost to set up the project is $450,000. This amount is to be linearly depreciated to zero over the life of the project. The firm expects to be able to sell the equipment for $90,000 after 6 years. The price per unit is $380, variable costs are $304 per unit and fixed costs are $45,000 per year. The project has a required return of 12% and a tax rate of 28%....
Consider a project with a 6-year life. The initial cost to set up the project is...
Consider a project with a 6-year life. The initial cost to set up the project is $1,200,000. This amount is to be linearly depreciated to zero over the life of the project. You expect to sell the equipment for $240,000 after 6 years. The project requires an initial investment in net working capital of $120,000, which will be recouped at the end of the project. You estimated sales of 63,000 units per year at a price of $160 each. The...
Consider a project with a 4-year life. The initial cost to set up the project is...
Consider a project with a 4-year life. The initial cost to set up the project is $1,200,000. This amount is to be linearly depreciated to zero over the life of the project. You expect to sell the equipment for $240,000 after 4 years. The project requires an initial investment in net working capital of $120,000, which will be recouped at the end of the project. You estimated sales of 52,000 units per year at a price of $177 each. The...
Consider a project with a 4-year life. The initial cost to set up the project is...
Consider a project with a 4-year life. The initial cost to set up the project is $1,200,000. This amount is to be linearly depreciated to zero over the life of the project. You expect to sell the equipment for $240,000 after 4 years. The project requires an initial investment in net working capital of $120,000, which will be recouped at the end of the project. You estimated sales of 52,000 units per year at a price of $177 each. The...
Consider a project with a 4-year life. The initial cost to set up the project is...
Consider a project with a 4-year life. The initial cost to set up the project is $1,200,000. This amount is to be linearly depreciated to zero over the life of the project. You expect to sell the equipment for $240,000 after 4 years. The project requires an initial investment in net working capital of $120,000, which will be recouped at the end of the project. You estimated sales of 77,000 units per year at a price of $137 each. The...
Consider a project with a 5-year life. The initial cost to set up the project is...
Consider a project with a 5-year life. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project and there is no salvage value. The required return is 13% and the tax rate is 34%. You've collected the following estimates: Base case Pessimistic Optimistic Unit sales per year (Q) 8,000 6,000 10,000 Price per unit (P) 50 40 60 Variable cost per unit (VC) 20 35...
Consider a project with a 4-year life. The initial cost to set up the project is...
Consider a project with a 4-year life. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project and there is no salvage value. The required return is 13% and the tax rate is 34%. You've collected the following estimates: Base case Pessimistic Optimistic Unit sales per year (Q) 7,000 5,000 9,000 Price per unit (P) 50 40 60 Variable cost per unit (VC) 20 35...
A short life (LS) project has a life of 5 years with an initial cost of...
A short life (LS) project has a life of 5 years with an initial cost of $5,628 and annual cost of $630 and interest rate of 4%. This project is to be compared with a long (infinite) life project (L:F). Find the capitalized cost CC for the short life project for the purpose of comparison.
A firm is considering a project with a 5-year life and an initial cost of $1,000,000....
A firm is considering a project with a 5-year life and an initial cost of $1,000,000. The discount rate for the project is 10%. The firm expects to sell 2,500 units a year for the first 3 years. The after-tax cash flow per unit is $120. Beyond year 3, there is a 50% chance that sales will fall to 900 units a year for both years 4 and 5, and a 50% chance that sales will rise to 3,000 units...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT