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QUESTION 2:

Accounting Rate of Return Vanderhoort Company invested $9,920,000 in a new product line. The life cycle of the product is projected to be seven years with the following net income stream: $360,000, $360,000, $600,000, $1,080,000, $1,200,000, $2,520,000, and $1,444,000. Required: Calculate the ARR. Enter your answer as a decimal, do not convert to a percent. Round your answer to two decimal places. 0.22 Feedback Check My Work Average Net Income Accounting Rate of Return Investment Review the "How to Calculate the Accounting Rate of Return" example in the text. Talmage Inc. has just completed development of a new printer. The new product is expected to produce annual revenues of $2,700,000. Producing the printer requires an investment in new equipment costing $2,880,000. The printer has a projecte life cycle of 5 years. After 5 years, the equipment can be sold for $360,000. Working capital is also expected to decrease by $360,000, which Talmage will recover by the end of the new product's life cycle. Annual cash operating expenses are estimated at $1,620,000. The required rate of return is 8%. Required: 1. Prepare a schedule of the projected annual cash flows. Year Item Cash Flow 0 Equipment 2,880,000 Working capital 360,000 Total 3,240,000 1-4 Revenues 2,700,000 Operating expenses 1,620,000 Total 1,080,000 5 Revenues 1,700,000 X Operating expenses 1,620,000 Salvage 360,000 Recovery of working capital 360,000 Total $ 1,800,000