29. Darth Company is considering the purchase of new heavy construction equipmen

Question

29.
Darth Company is considering the purchase of new heavy construction equipment that will cost $2,000,000 and have a life of 8 years with no expected salvage value. The expected cash flows associated with the project are as follows:
Year Cash Revenues Cash Expenses & Depreciation
1 $2,400,000 $1,900,000
2 $2,400,000 $1,900,000
3 $2,400,000 $1,900,000
4 $2,400,000$1,900,000
5 $2,400,000 $1,900,000
6 $2,400,000 $1,900,000
7 $2,400,000 $1,900,000
8$2,400,000 $1,900,000


What is the average annual income for this project?

a. $2,400,000
b. $1,900,000
c. $500,000
d. $62,500
e. $300,000

30.
What is the accounting rate of return for the project?
a. 25%
b. 3.125%
c. 400%
d. 83.33%
e. 120%

Explanation / Answer

25%

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