Accounting rate of return and payback reciprocal Hyrise Space Company plans to buy an office building for $875,000. The building has an estimated life of 15 years and a salvage value of $50,000. Of the purchase price, $45,000 is allocated to the land and the remainder to the building. The company plans to use straight-line depreciation. Annual rent revenue from the building is expected to be $400,000 and operating expenses are estimated at $225,000, not including depreciation.

Transcribed Image Text:

REQUIRED a. Compute the accounting rate of return using actual cost and average cost as a base. b. Estimate the internal rate of return by computing the payback reciprocal.