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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 %
Solutions
Expert Solution
Testing Equipment:
Initial Investment = $48,000
Useful Life = 4 years
Residual Value = $0
Total Income = $5,280
Average Investment = (Initial Investment + Residual Value) /
2
Average Investment = ($48,000 + $0) / 2
Average Investment = $24,000
Annual Income = Total Income / Useful Life
Annual Income = $5,280 / 4
Annual Income = $1,320
Average Rate of Return = Annual Income / Average
Investment
Average Rate of Return = $1,320 / $24,000
Average Rate of Return = 5.5%
Diagnostic Software:
Initial Investment = $20,000
Useful Life = 5 years
Residual Value = $0
Total Income = $4,750
Average Investment = (Initial Investment + Residual Value) /
2
Average Investment = ($20,000 + $0) / 2
Average Investment = $10,000
Annual Income = Total Income / Useful Life
Annual Income = $4,750 / 5
Annual Income = $950
Average Rate of Return = Annual Income / Average
Investment
Average Rate of Return = $950 / $10,000
Average Rate of Return = 9.5%
jeff jeffy answered 1 year agoRelated Solutions
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Useful life
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Estimated residual value
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Estimated total income over the useful life
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Average Rate of Return The following data are accumulated by Eco Labs, Inc. in evaluating two...
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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
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Vehicle
%
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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.
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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...
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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...
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Which of the following is an example of a systematic
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Net Present Value Method
The following data are accumulated by Paxton Company in
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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...
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Net Present Value
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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...
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Year 1
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$75,000
Year 2
27,000
58,000
Year 3
13,000
44,000
Year 4
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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
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0.840
0.751
0.712
0.658
0.579
4
0.792
0.683...
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