1) Dooney and Burke, is considering an investment in computer

and network equipment costing $254,000. This equipment would allow

them to offer new programming services to clients. The equipment

will be depreciated on the straight-line basis over an eight-year

period with an estimated residual value of $60,000. Using the

accounting rate of return model, what is the minimum average annual

operating income that must be generated from this investment in

order to achieve 11% accounting rate of return?

2) When you graduated from college, your mother plans to give

you a gift of $50,000 to start you on your way. However, to

determine what you learned in business school, your mother presents

you with four options on how to received the gift. Which of the

options presented by your mother will yield the greatest present

value to you?

a) a lump sum of $50,000 after grad school (2 years) assuming a

3% discount rate?

b) a lump sum of $50,000 today

c) a lump sum of $50,000 after grad school (2 years) assuming a

5% discount rate

d) $25,000 per year for the next 2 years using a 3% discount

rate