Super Apparel wants to replace an old machine with a new one. The new machine would increase annual revenue by $200,000 and annual operating expenses by $80,000. The new machinewould cost $400, 000. The estimated useful life of the machine is 10 years with zero salvage value. i. Compute the Accounting Rate of Return (ARR) of the machine using the above information. ii.Should Super Apparel purchase the machine if management wants an Accounting Rate of Return (ARR) of 19% on all capital investments? Hint: Use Average Income or Profit after deducting tax,depreciation, and operating expenses.

The Accounting Rate of Return (ARR) is a financial metric used to evaluate the profitability of an…

Answered: Super Apparel wants to replace an old…

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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Kunkel Company is considering the purchase of a $29,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. Calculate the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the net present value of the investment in the machine. Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s). Net present value
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