Question
1.Larry's Lawn Service needs to purchase a new lawnmower costing $8,416 to replace an old lawnmower that cannot be repaired. The new lawnmower is expected
1.Larry's Lawn Service needs to purchase a new lawnmower costing $8,416 to replace an old lawnmower that cannot be repaired. The new lawnmower is expected to have a useful life of 6 years, with no salvage value at the end of that period.
(a)If Larry's required rate of return is 11%, what level of annual cash savings must the lawnmower generate to be considered an acceptable investment under the net present value method?(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)
Annual cash savings should be $______
(b)If Larry's required rate of return is 18%, what level of annual cash savings must the lawnmower generate to be considered an acceptable investment under the net present value method?(For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)
Annual cash savings should be $______
2. Payton and Finley Davis run a real estate brokerage firm. They have just moved into a new building and want to add some outdoor digital signage to advertise the firm's services. The sign they are considering has two display areas that can display two different images at the same time and costs $142,250. It is expected to have a useful life of 5 years. In an effort to recoup the cost of the sign, Payton and Finley will rent one display panel to other tenants in the building for $36,400 a year. Electricity to power the sign is expected to be $1,005 per year.
Calculate the annual net operating income generated by the new sign.
Annual net operating income $______
Calculate the accounting rate of return of the new sign.(Round answer to 2 decimal places, e.g. 52.75%.)
Accounting rate of return
_____%
If the sign is successful in generating new business for the firm, how will the accounting rate of return be affected?
If the sign is successful, accounting rate of return will
-increase
-decrease
.
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