y is considering buying equipment for $320,000 with a useful life of five and an
ID: 2528509 • Letter: Y
Question
y is considering buying equipment for $320,000 with a useful life of five and an estimated salvage value of Sl6,000.If annual expected income is $28,000, 13. Garza Compan the denominator in computing the annual rate of return is: B) $336,000 C) $168,000 D) $320,000 ?) Present Value of $1 7%8%9%10% Periods 4% 5% 0% 12% 14% 16% 16% 20% 3% 0.971 0,962 9.952 0.943 0935 0.926 0.917 0909 0893 0.877 0.862 0847 0833 0.943 0.925 0.907 0.890 0873 0857 0.842 0.826 0.797 0.769 0.743 0.718 0.694 0915 0.889 0.864 0.840 0816 0.794 0.772 0.751 0.712 0.675 0.641 0.609 0.579 0,888 0855 0.823 0.792 0763 0.735 0.708 0.683 0.636 0.592 0.552 0.516 0.482 0863 0822 0.784 0747 0,713 0.681 0.650 0.621 0.567 0.519 0.476 0.437 0.402 0.837 0.790 0746 0,705 0.666 0.630 0.596 0.564 0.507 0.456 0.410 0.370 0.335 0813 0.760 0,711 0,665 0.623 0.583 0.547 0.513 0.452 0.400 0.354 0314 0.279 0.789 0.731 0.677 0627 0.582 0.540 0.502 0.467 0.404 0.351 0.305 0.266 0.233 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.361 0308 0.263 0.225 0,194 10 0.744 0676 0.614 0.558 0.508 0,463 0.422 0386 0.322 0270 0.227 0.191 0.1 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.287 0.237 0.195 0.162 0.135 0.701 0.625 0557 0.497 0.444 0.397 0.356 0.319 0.257 0.208 0.168 0.137 0.112 Present Value of an Ordinary Annuity of $1 Payments ?% 4% 5% 6% 7% 8% 9% 10% 12% 14% 16% 18% 20% 0.971 0.962 9.952 0.943 0.935 0.926 0,917 0.909 0.893 0.877 0862 0.847 0.833 1913 1.886 1859 1.833 1808 1.783 759 1.736 1.690 1.647 1.605 1.566 1.528 2.829 2.775 2.723 2.673 2.624 2.577 2,531 2.487 2.402 2.322 2.246 2.174 2.106 3.717 3.630 3.546 3.465 3.387 3312 3240 3.170 3.037 2.914 2.798 2.690 2.589 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.274 3.127 2991 5.417 5242 5.076 4917 4767 4.623 4.486 4.355 4.111 3889 3.685 3.498 3.326 6.230 6.002 5.786 5.582 5.389 5.206 5033 4.868 4.564 4.288 4.039 3.812 3605 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.344 4.078 3.837 7.786 7435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.607 4.303 4.031 8.530 8.111 7.722 7.360 7.024 6.10 6.418 6.145 5.650 5216 4833 4.494 4.192 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.029 4.656 4.327 9.954 9.385 8863 8.384 7.943 7.536 7.161 6814 6.194 5.660 5.197 4.793 4.439Explanation / Answer
Solution 13:
Annual rate of return = Average annual income / Avearge investment
Average investment = (Cost + Salvage Value) / 2 = ($320,000 + $16,000) / 2 = $168,000
Hence denominator in computing ARR is $168,000
Therefore option C is correct.
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