QUESTION 36Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%:FV of $1FVOAPV of $1PVOA2.5937415.937420.385546.14457 Required: Compute the Accounting Rate of Return of the investment 14.3% 8% 10% 11.4%

Solution:- Accounting Rate of Return means the percentage of increase in net income per year to the…

Answered: Advanced Products is considering the…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 21BEA

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QUESTION 36

Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%:

FV of $1

FVOA

PV of $1

PVOA

2.59374

15.93742

0.38554

6.14457

Required: Compute the Accounting Rate of Return of the investment

14.3%

8%

10%

11.4%

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