A project requires an immediate investment of $68,629 in some new equipment with an estimated useful life of 10 years and no salvage value. If predicted annual savings or cash operating expenses are $14,555, what is the accounting rate of return based on the original investment? Input answer to two decimal places.
The quality of the project report is directly proportional to the realistic predictions of input data. The project cash flows are difficult to estimate and require specialized skills and knowledge by the finance managers to validate them. The finance managers should ask the right questions to relevant employees to validate the cash flow projections.
Answer and Explanation: 1
"The accounting rate of return on the investment:"
- The life of the equipment is 10 years
- The book value of the equipment is $68,629
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fromChapter 3 / Lesson 4
Cost-benefit analysis models take into account payback (time period to cover costs) and accounting rate of return (annual revenue generated). See how these two concepts are considered for investment decisions.