Question 9A Darth Company is considering the purchase of new heavy construction

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Question 9A
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?

$2,400,000

$1,900,000

$500,000

$62,500

$300,000



Question 9B
What is the accounting rate of return for the project?

25%

3.125%

400%

83.33%

120%

Explanation / Answer

9A. $500,000

9B. 25%

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