Sayer Tool Co. is considering investing in specialized equipment costing $620,000. The equipment has a useful life of five years and a residual value of $69,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are given below: Year 1 2 3 5 $203,000 150,000 OA. 14.45% OB. 11.55% OC. 5.78% D. 12.84% 168,000 98,000 131,000 $750,000 What is the accounting rate of return on the investment? (Round your answer to two decimal places.)
Sayer Tool Co. is considering investing in specialized equipment costing $620,000. The equipment has a useful life of five years and a residual value of $69,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are given below: Year 1 2 3 5 $203,000 150,000 OA. 14.45% OB. 11.55% OC. 5.78% D. 12.84% 168,000 98,000 131,000 $750,000 What is the accounting rate of return on the investment? (Round your answer to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Sayer Tool Co. is considering investing in specialized equipment costing $620,000. The
equipment has a useful life of five years and a residual value of $69,000. Depreciation is
calculated using the straight-line method. The expected net cash inflows from the investment
are given below:
Year 1
2
3
4
$203,000
150,000
168,000
98,000
131,000
$750,000
What is the accounting rate of return on the investment? (Round your answer to two
decimal places.)
OA. 14.45%
B. 11.55%
OC. 5.78%
D. 12.84%
Transcribed Image Text:A company is evaluating three possible investments. Each uses the straight-line method of
depreciation. Following information is provided by the company:
Investment
Residual value
Net cash inflows:
Year 1
Project A Project B
$240,000
$52,000
0
28,000
OA. 39.54%
OB. 41.25%
OC. 29.09%
D. 46.89%
52,000
52,000
Project C
$240,000
40,000
32,000
Year 2
23,000
Year 3
52,000
19,000
Year 4
52,000 16,000
Year 5
52,000
0
What is the accounting rate of return for Project B? (Round your answer to two
86,000
56,000
66,000
26,000
0
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