Accounting rate of return Orin Company is evaluating the purchase of a warehouse that would be operated as an independent division. The cost of the property is $450,000. The building has an estimated life of 20 years and no salvage value. The land is valued at $10,000. The company uses straight-line depreciation. Revenues are estimated at $125,300 per year and oper- ating expenses at $25,000 per year, not including depreciation. Orin Company requires a minimum accounting rate of return of 17 percent before tax on its investments.

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REQUIRED a. Compute the accounting rate of return using project cost as a base and decide if the project is acceptable. b. Estimate the internal rate of return on the project by computing the payback reciprocal.