Question
Accounting Rate of Return Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Cobre Company is
Accounting Rate of Return Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $4,600,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year 1 Cash Revenues $6,000,000 Cash Expenses $4,800,000 2 6,000,000 4,800,000 3 6,000,000 4,800,000 4 4,800,000 4,800,000 5 6,000,000 6,000,000 b. Emily Hansen is considering investing in one of the following two projects. Either project will require an investment of $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1 $22,500 $22,500 2 30,000 30,000 3 45,000 45,000 4 75,000 5 75,000 22,500 22,500 c. Suppose that a project has an ARR of 30% (based on initial investment) and that the average net income of the project is $120,000. d. Suppose that a project has an ARR of 50% and that the investment is $225,000.
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