Answered

Discover a wealth of knowledge at Westonci.ca, where experts provide answers to your most pressing questions. Get immediate and reliable answers to your questions from a community of experienced experts on our platform. Get immediate and reliable solutions to your questions from a community of experienced professionals on our platform.

Caldo Professional Movers is considering purchasing some new equipment costing $210,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. Projected net income for the four years are $7,200, $11,300, $14,100, and $20,000. What is the average accounting rate of return? Assume the required AAR is 12%, should we buy the new equipment?

Sagot :

Parrain

Based on the projected net incomes and cost of purchasing the equipment, the average accounting rate of return is 12.5%.

How can we find the average accounting rate of return?

This can be found as:

= Average cashflows / Average investment

Average cashflows are:

= (7,200 + 11,300 + 14,100 + 20,000) / 4

= $13,150

Average investment is:

= 210,000 / 2

= $105,000

The average accounting rate of return is:

= 13,150 / 105,000

= 12.5%

The new equipment should not be bought if the required AAR is 12% because it would be less than the AARR.

Find out more on Average accounting rate of return at https://brainly.com/question/18914899.

#SPJ1

We hope this information was helpful. Feel free to return anytime for more answers to your questions and concerns. We hope this was helpful. Please come back whenever you need more information or answers to your queries. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.