Assignment Instructions

Calculate the Accounting Rate of Return $($ARR$)$ for the following projects:

$1.$ A project has an initial cost of $$80,000.$

The project$$s EBIT $($in USD$)$ for the next $5$ years is given below.$\backslash$table$[[$Year$,1,2,3,4,5],[$EBIT$,20,000,20,000,60,000,50,000,40,000]]$ The given tax rate for the corporation is $50\%$ p$.$a$.$ Find out the Accounting Rate of Return $($ARR$)$ for the firm.

Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.

$2.$ Super Apparel wants to replace an old machine with a new one. The old machine can be sold to a trader for $$20,000.$ The new machine would increase annual revenue by $$200,000$ and annual operating expenses by $$80,000.$ The new machine would cost $$400,000.$ The machine's estimated useful life is ten years with zero salvage value.

i$.$ Compute the Accounting Rate of Return $($ARR$)$ of the machine using the above information.

ii$.$ Should Super Apparel purchase the machine if management wants an Accounting Rate of Return $($ARR$)$ of $19\%$ on all capital investments?

Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.

$3.$ Pace Company is considering undertaking a project that would generate annual profits $($after depreciation$)$ of $$68,000$ for $5$ years. The initial outlay of the project is estimated to be $$800,000.$ It is also estimated that the scrap value of the residual from the project would fetch an amount of $$50,000$ at the end of the project.

What would be the Accounting Rate of Return $($ARR$)$ for this project?