Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts. The machine
Question:
Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts.
The machine generates, on average, $6,100 per year in additional net income.
a. What is the average accounting return for this machine?
b. What three flaws are inherent in this decision rule?
Year 0 Year 1 Year 2 Year 3 Year 4 Gross investment $63,000 $63,000 $63,000 $63,000 $63,000 Less: Accumulated depreciation 15,750 31,500 47,250 63,000 Net investment $63,000 $47,250 $31,500 $15,750 $
Step by Step Answer:
a The average accounting return is the average project earnings after taxes divided by the average b...View the full answer
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
Students also viewed these Business questions
-
A firm is considering purchasing a machine that costs $65,000. It will be used for six years, and the salvage value at that time is expected to be zero. The machine will save $35,000 per year in...
-
Your firm is considering purchasing some computers. Each computer costs $2,600, and each will add to your net revenue by known amounts. Because you plan to use the computers for different purposes,...
-
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be...
-
Many states are now imposing severance taxes on resources being extracted within their borders. In order to understand the effect of these on the allocation of the mineral over time, assume a stable...
-
Which of the following describe continuous random variables? Which describe discrete random variables? a. The number of newspapers sold by the New York Times each month b. The amount of ink used in...
-
Refer to the financial statements for Castile Products, inc., in Exercise 16-7. In addition to the data in these statements, assume that Castile Products, Inc., paid dividends of $2.10 per share...
-
An investor purchased 100 shares of Mallard common stock at \(\$ 20\) per share on March 15, 2020. On December 31, 2020, the stock was quoted at \(\$ 19\) per share and declared and paid a dividend...
-
Wescott Company has three divisions: A, B, and C. The company has a hurdle rate of 8 percent. Selected operating data for the three divisions are as follows: Wescott is considering an expansion...
-
Question: Using the Inherent Risk Factors listed on pages 77-78 of ASA315, identify what you consider to be four (4) inherent risks that could have an impact on the audit of BHP for the reporting...
-
A soil profile is shown in Figure 1 along with the standard penetration numbers in the clay layer. Use Eqs. (1) and (2) to determine the variation of cu and OCR with depth. What is the average value...
-
In November 2018, Toyota and Mazda broke ground on a $1.6 billion plant to be operated jointly in Alabama. Toyota and Mazda apparently felt that they would be better able to compete and create value...
-
The Mickelson Group has invested $34,000 in a high-tech project lasting three years. Depreciation is $9,600, $15,900, and $8,500 in Years 1, 2, and 3, respectively. The project generates earnings...
-
Identify and discuss the alternative courses of action for an auditor when his sample results indicate that a control cannot be relied upon.
-
How is the frequency of the solution of Duffing's equation affected by the nature of the spring?
-
What is the source of nonlinearity in Duffing's equation?
-
True or False. Nonlinearity can be introduced into the governing differential equation through mass, springs, and/or dampers.
-
Give two examples of physical phenomena that can be represented by van der Pol's equation.
-
What is a limit cycle?
-
Based on your experience or readings, discuss how Supply Management and in particular Supply Chain Management benefits organizations in the public and private sectors. What are the salient factors...
-
How can you tell from the vertex form y = a(x - h) 2 + k whether a quadratic function has no real zeros?
-
Why do firms issue convertible bonds and bonds with warrants?
-
When should a firm force conversion of convertibles? Why?
-
A warrant with six months until expiration entitles its owner to buy 10 shares of the issuing firm s common stock for an exercise price of $31 per share. If the current market price of the stock is...
-
true or false: "Intruding magmatic bodies help metamorphism by increasing the temperature nearby." Group of answer choices This statement is true. Magma rises to the surface and loses heat. The heat...
-
How many can-type combustors are typically arranged around the outside of the turbine shaft between the compressor manifold and the turbine? Group of answer choices Between six and eight Exactly...
-
Among all the properties we studied in chapter 10 about Venus and Mars, which property that Venus has is extremely high in comparison to Mars? Group of answer choices Period. Density. Escape...
Study smarter with the SolutionInn App