Information for two alternative projects involving machinery investments follows: Project 1 $ (137,000) Initial investment Salvage value Annual income 0 16,440 a. Compute accounting rate of return for each project. b. Based on accounting rate of return, which project is preferred? Project 2 $ (107,000) 17,000 15,500 Complete this question by entering your answers in the tabs below. Project 1 Project 2 Required A Required B Compute accounting rate of return for each project. Numerator: Accounting Rate of Return Denominator: W Accounting rate of return

Information for two alternative projects involving machinery investments follows: Project 1 $ (137,000) Initial investment Salvage value Annual income 0 16,440 a. Compute accounting rate of return for each project. b. Based on accounting rate of return, which project is preferred? Project 2 $ (107,000) 17,000 15,500 Complete this question by entering your answers in the tabs below. Project 1 Project 2 Required A Required B Compute accounting rate of return for each project. Numerator: Accounting Rate of Return Denominator: W Accounting rate of return

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Apple Juice Corp plans to take up a project that will cost $150,000 of investment in Building and $80,000 in new machinery. Apple Juice Corp has already spent $8000 on research and analysis about the products that will be developed in this unit. By taking up this project, Apple Juice Corp. estimates additional cash flows of $85000 per annum for the next five years. COGS are expected to be 40% of the revenues, SG&A will be 4% of the revenues. This project will require an additional inventory of $60,000 and an increase in payables by $25000 Tax Rate is 20% The target Debt: Equity is 1:4 Cost of new debt: 6% Cost of Equity: Need to calculate using the beta of 0.9, Rf of 4%, and market risk premium of 6% The equipment that would be used has a 3-year tax life. Under the new tax law, the equipment used in the project is eligible for 100% bonus depreciation, so it will be fully depreciated at t = 0. The Salvage value of Building and Machinery after 5 years is $100,000. You, as a financial…
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