Adrian Sonnetson, the owner of Adrian Motors, is considering the addition of a paint and body shop

Question:

Adrian Sonnetson, the owner of Adrian Motors, is considering the addition of a paint and body shop to his automobile dealership. Construction of a building and the purchase of necessary equipment is estimated to cost $800,000, and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of l0years.Sonnetson’s required rate of return for this project is 12 percent Net income related to each year of the investment is as follows:
Revenue .......... $500,000
Less:
Material cost ....... 70,000
Labor ............ 153,000
Depreciation ....... 80,000
Other ............ 10,000
Income before taxes .... 190,000
Taxes at 40% ........ 75,000
Net income ........ $114000

Required
a. Determine the of the investment in the paint and body shop. Should Sonnetson invest in the paint and body shop?
b. Calculate the of the investment (approximate).
c. Calculate the of the investment. d. Calculate the accounting rate of return.
d. Calculate the accounting rate of return.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...