Question

Carmino Company is considering an investment in equipment that is expected to generate an after-tax income...

Carmino Company is considering an investment in equipment that is expected to generate an after-tax income of $3,000 for each year of its four-year life. The asset has no salvage value. The firm is in the 30% tax bracket. The net book value (NBV) of the investment at the beginning of each year is expected to be as follows:

Year 1 $ 15,000
Year 2 7,500
Year 3 4,500
Year 4 2,250

Calculate this asset's accounting (book) rate of return (ARR) on average investment (which is defined as a simple average of the average book value of the asset for each year of its four-year life). Round the final answer to the nearest whole %.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Solomon Company is considering investing in two new vans that are expected to generate combined cash...
Solomon Company is considering investing in two new vans that are expected to generate combined cash inflows of $33,000 per year. The vans’ combined purchase price is $98,500. The expected life and salvage value of each are four years and $22,000, respectively. Solomon has an average cost of capital of 16 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity. (Negative amount should be...
Mr. Budi is a Finance Director of a trading company. He must choose three investment alternatives...
Mr. Budi is a Finance Director of a trading company. He must choose three investment alternatives below. Each asset is expected to generate returns for three years according to the table below: Year Asset 1 Asset 2 Asset 3 1 10,500 4,500 7,500 2 8,500 7,500 7,500 3 3,500 10,500 7,500 Based on the achievement of the maximum goal, which one should the financial manager choose? And why?
A division is considering the acquisition of a new asset that will cost $2,890,000 and have...
A division is considering the acquisition of a new asset that will cost $2,890,000 and have a cash flow of $710,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each...
Carter company’s machine costs $20,000 and is expected to have a 10-year life. It will depreciate...
Carter company’s machine costs $20,000 and is expected to have a 10-year life. It will depreciate straight-line over a 10-year life to a zero salvage value and it is expected to reduce the firm’s cash operating costs by $3,000 per year. If the firm is in the 50 percent marginal tax bracket, what estimated Year 1–n net cash flows will the machine generate?
Fanning Company is considering investing in two new vans that are expected to generate combined cash...
Fanning Company is considering investing in two new vans that are expected to generate combined cash inflows of $25,500 per year. The vans’ combined purchase price is $91,000. The expected life and salvage value of each are six years and $20,100, respectively. Fanning has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity. (Negative amount should be...
Benson Company is considering investing in two new vans that are expected to generate combined cash...
Benson Company is considering investing in two new vans that are expected to generate combined cash inflows of $25,500 per year. The vans’ combined purchase price is $100,000. The expected life and salvage value of each are seven years and $21,300, respectively. Benson has an average cost of capital of 12 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required Calculate the net present value of the investment opportunity. (Negative amount should be...
Company ABC is considering a new 5-year investment into new production equipment that requires initial investment...
Company ABC is considering a new 5-year investment into new production equipment that requires initial investment € 5 million. The project is expected to generate € 1.4 million in annual sales, with costs of € 0.6 million per year for next 5 years. ABC uses the straight-line depreciation over the 5 years of project life (book value assumed to be zero at the end of the project). If the tax rate is 35%. What is the annual operating cash flow...
A company is considering a new project. The project will generate $200,000 in revenues and $110,000...
A company is considering a new project. The project will generate $200,000 in revenues and $110,000 in operating costs each year for the next 5 years. It would require an additional investment of $150,000 to be depreciated to a zero book value on a straight line basis over 5 years. The investment has a salvage value of $20,000. The tax rate is 40%. At the end of year 5, there is a $10,000 return of networking capital. Determine the annual...
An asset is purchased on January 1 at a cost of $25,000. It is expected to...
An asset is purchased on January 1 at a cost of $25,000. It is expected to be used for four years and have a salvage value of $1,000. Calculate the depreciation expense for each year of the asset's useful life under each of the following methods: (Show Work) Straight-line method Double-declining-balance method Sum-of-the-years-digits' method
A firm is considering an investment in a new machine with a price of $15.6 million...
A firm is considering an investment in a new machine with a price of $15.6 million to replace its existing machine. The current machine has a book value of $5.4 million and a market value of $4.1 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.3 million in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT