Solution-Calculate the Accounting Rate of Return

Calculate the Accounting Rate of Return

Assignment Help Accounting Basics

Reference no: EM132729898

Question - Safe Home Lid is firm specialising in the development and installation of electronic security systems. The company is considering the purchase of testing equipment that would be used in the development and testing of its security systems. The equipment would cost $158,400 and would have no residual value at the end of its 5-year life.

The firm's accountant projects revenue and expenses with the operation of the equipment that are equal to the cash inflows and cash outflows associated with it, except for depreciation. A summary of the cash flows expected from the equipment is as follows:

Year	Revenue	Expenses (Excluding Depreciation)
1	125,500	83,520
2	138,240	88,560
3	147,240	88,560
4	156,240	88,560
5	165,240	88,560

The company's cost of capital is 12% and the minimum ARR that is acceptable is 30%.

Required -

(a) Calculate the Accounting Rate of Return (ARR) for the testing equipment, showing your answer to one decimal place.

(b) Calculate the Net Present Value (NPV) of the testing equipment.

Reference no: EM132729898

Questions Cloud

Principles for setting up virtual collaborations : a. Which of the principles for setting up virtual collaborations might be most helpful in explaining what is happening and why?

Explain the impact the adoption of the type of technology : Find a recent article that relates to a software that has malfunctioned and caused either serious injury, death, or loss of revenue. Summarize the article.

Describe three types of flexible work arrangements : Bias is everywhere in our world. When you go to buy a car, discuss one of the types of bias we learned about and how it is applied by the salesperson or you.

How will borrowing be linked to the two new properties : The cost of property A is $120,000, while the cost of property B is $180,000. How will the $180,000 in borrowing be linked to the two new properties?

Calculate the Accounting Rate of Return : The company's cost of capital is 12% and the minimum ARR that is acceptable is 30%. Calculate the Accounting Rate of Return (ARR) for the testing equipment

Five key financial assets : Briefly define each of the five key financial assets. Is every financial asset also a financial security?

Corporate capital budgeting practices : Capital budgeting refers to the financial assessment of the capital investment proposals of a company. In other words, capital budgeting involves assessing

Do the closing entries at december and why : Enter the balances in T-accounts, post the closing entries, and underline and balance the accounts. Do the closing entries at December 31.

Difference between moral hazard and adverse selection : What is the difference between moral hazard and adverse selection? Explain the "lemons problem."

User Account

All Pages

Calculate the Accounting Rate of Return

Reference no: EM132729898

Reference no: EM132729898

Questions Cloud

Reviews

Write a Review

Accounting Basics Questions & Answers

How much control does fed have over this longer real rate

Coures:- fundamental accounting principles

Accounting problems

Theory of interest - term structure of interest rates

Write a report on internal controls

Prepare the bank reconciliation for company

Cost-benefit analysis

Theory of interest

Liquidity and profitability

What is the expected risk premium on the portfolio

Simple interest and compound interest

Capm and venture capital

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT