Question
Calculate and compare the accounting rate of return for three different investment options. Relevant details: - Average reported operating income of $1,740,000 - 10% discount
Calculate and compare the accounting rate of return for three different investment options.
Relevant details: - Average reported operating income of $1,740,000 - 10% discount rate utilized in evaluating capital investments - Government exempted taxes on profits from new investments (expected to continue) - The budget target of $500,000, unless a variance is warranted for exceptional reasons.
Option 1: Cost of $300,000. 8-year useful life expectation with no salvage value. Straight-line depreciation is used. Net cash inflow is expected to be $62,000 each year for 8 years.
Option 2: Cost of $521,000. 6-year useful life expectation with no salvage value. Straight-line depreciation is used. Net cash inflow is expected to be $142,000 each year for 6 years.
Option 3: Cost of $280,000, 4-year useful life expectation with no salvage value. Straight-line depreciation is used. Net cash inflow is expected to be $89,000 each year for 4 years.
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