Explanation The accounting rate of return method (ARR): The accounting rate of return is the amount of income which is earned over the life of the investment. It is used to measure the annual income as a percent of the annual investment of the business, and it is also known as the annual rate of return. Calculate the annual rate of return of company H as follows: Average rate of return = Estimated average annual net income (3) Average investment (4) = $1,229,042 $5,800,000 = 21.19 Working note (1): Compute the total net cash inflows during operating life of expansion: Total net cash inflows during operating life of expansion } = [ Average annual net cash inflow × Operating life of expansion ] = $ 2 , 714 , 756 × 7 years = $ 19 , 003 , 292 Working note (2): Compute the total depreciation during operating life of expansion: Total depreciation during operating life of expansio

Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)

6th Edition

ISBN: 9780134486857

Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura

Publisher: PEARSON

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. …

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Chapter 26, Problem 6SE

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Ascertain the annual rate of return of company H.

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Chapter 26, Problem 5SE

Chapter 26, Problem 7SE

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Chapter 26 Solutions

Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)

Ch. 26 - Match the following business activities to the...Ch. 26 - Match the following business activities to the...Ch. 26 - Prob. 3TI Ch. 26 - Prob. 4TI Ch. 26 - Prob. 5TI Ch. 26 - Match the following business activities to the...Ch. 26 - Prob. 7TI Ch. 26 - Prob. 8TI Ch. 26 - Prob. 9TI Ch. 26 - Based on your answers to the above questions,...

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