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Average Rate of Return The following data are accumulated by Lone Peak Inc. in evaluating two...
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Average Rate of Return
The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals:
3D Printer Truck Amount of investment $92,000 $88,000 Useful life 4 years 9 years Estimated residual value 0 0 Estimated total income over the useful life $10,120 $35,640 Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place.
3D Printer % Truck %
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Expert Solution
| For 3D Printer |
| Estimated Annual Average Profit = Total Income/No. of Years |
| Estimated Annual Average Profit = $ 10,120/ 4 Years |
| Estimated Annual Average Profit = $ 2,530 |
| Average Investment = (Investment Value+Salvage Value)/2 |
| Average Investment = ($ 92,000+0)/2 |
| Average Investment = $ 46,000 |
| ARR (Average rate of return) = Average Accounting Profit/Average Investment |
| ARR (Average rate of return) = $ 2530/$ 46000 |
| ARR = 5.50% |
| For Truck |
| Estimated Annual Average Profit = Total Income/No. of Years |
| Estimated Annual Average Profit = $ 35,640/ 9 Years |
| Estimated Annual Average Profit = $ 3,960 |
| Average Investment = (Investment Value+Salvage Value)/2 |
| Average Investment = ($ 88,000+0)/2 |
| Average Investment = $ 44,000 |
| ARR (Average rate of return) = Average Accounting Profit/Average Investment |
| ARR (Average rate of return) = $ 3960/$ 44000 |
| ARR = 9.00% |
ekkarill92 answered 2 years agoRelated Solutions
Average Rate of Return The following data are accumulated by Lone Peak Inc. in evaluating two...
Average Rate of
Return
The following data are
accumulated by Lone Peak Inc. in evaluating two competing capital
investment proposals:
3D Printer
Truck
Amount of investment
$24,000
$48,000
Useful life
4 years
7 years
Estimated residual value
0
0
Estimated total income over the useful life
$1,920
$13,440
Determine the expected
average rate of return for each proposal. If required, round your
answers to one decimal place.
3D Printer
%
Truck
%
Average Rate of Return The following data are accumulated by Eco Labs, Inc. in evaluating two...
Average Rate of Return
The following data are accumulated by Eco Labs, Inc. in
evaluating two competing capital investment proposals:
Testing Equipment
Vehicle
Amount of investment
$40,000
$48,000
Useful life
4 years
5 years
Estimated residual value
0
0
Estimated total income over the useful life
$6,000
$12,600
Determine the expected average rate of return for each proposal.
If required, round your answers to one decimal place.
Testing Equipment
%
Vehicle
%
Average Rate of Return The following data are accumulated by McDermott Motors Inc. evaluating two competing...
Average Rate of Return The following data are accumulated by
McDermott Motors Inc. evaluating two competing capital investment
proposals: Testing Equipment Diagnostic Software Amount of
investment $48,000 $20,000 Useful life 4 years 5 years Estimated
residual value $0 $0 Estimated total income over the useful life
$5,280 $4,750 Determine the expected average rate of return for
each proposal. If required, round to one decimal place. Testing
Equipment % Diagnostic Software %
The following data are accumulated by Eco Labs, Inc. in evaluating two competing capital investment proposals:...
The following data are accumulated by Eco Labs, Inc. in
evaluating two competing capital investment proposals:
Testing Equipment
Vehicle
Amount of investment
$56,000
$40,000
Useful life
4 years
5 years
Estimated residual value
0
0
Estimated total income over the useful life
$8,400
$10,500
Determine the expected average rate of return for each proposal.
If required, round your answers to one decimal place.
Testing Equipment
%
Vehicle
%
The following data are accumulated by Reynolds Company in evaluating the purchase of $164,000 of equipment,...
The following data are accumulated by Reynolds Company in
evaluating the purchase of $164,000 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$35,000
$60,000
Year 2
22,000
46,000
Year 3
11,000
35,000
Year 4
(1,000)
23,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482
5...
1. The following data are accumulated by Paxton Company in evaluating the purchase of $127,800 of...
1. The following data are accumulated by Paxton Company in
evaluating the purchase of $127,800 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$30,000
$50,000
Year 2
18,000
39,000
Year 3
9,000
29,000
Year 4
(1,000)
20,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683
0.636
0.572
0.482...
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Paxton Company in
evaluating the purchase of $128,700 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$36,000
$61,000
Year 2
22,000
47,000
Year 3
11,000
35,000
Year 4
(1,000)
24,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683...
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase...
Net Present Value
Method
The following data are
accumulated by Paxton Company in evaluating the purchase of $98,100
of equipment, having a four-year useful life:
Net Income
Net Cash Flow
Year 1
$31,000
$53,000
Year 2
19,000
41,000
Year 3
9,000
31,000
Year 4
(1,000)
21,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683...
Net Present Value Method The following data are accumulated by Geddes Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Geddes Company in
evaluating the purchase of $153,200 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$44,000
$75,000
Year 2
27,000
58,000
Year 3
13,000
44,000
Year 4
(1,000)
29,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683...
Net Present Value Method The following data are accumulated by Reynolds Company in evaluating the purchase...
Net Present Value Method
The following data are accumulated by Reynolds Company in
evaluating the purchase of $107,700 of equipment, having a
four-year useful life:
Net Income
Net Cash Flow
Year 1
$31,000
$53,000
Year 2
19,000
41,000
Year 3
9,000
31,000
Year 4
(1,000)
21,000
Present Value of $1 at Compound
Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
0.890
0.826
0.797
0.756
0.694
3
0.840
0.751
0.712
0.658
0.579
4
0.792
0.683...
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