Youre trying to determine whether or not to expand your business by building a n
ID: 2628600 • Letter: Y
Question
Youre trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $23.4 million, which will be depreciated straight-line to zero over its four-year life.
If the plant has projected net income of $2,055,000, $2,265,000, $2,274,000, and $1,446,000 over these four years, what is the project
Required:If the plant has projected net income of $2,055,000, $2,265,000, $2,274,000, and $1,446,000 over these four years, what is the project
Explanation / Answer
AAR = Average net income / Average book value
Average net income = ($2,055,000 + $2,265,000 + $2,274,000 + $1,446,000) / 4
Average net income = $2,010,000
Average book value = ($23,400,000 + 0) / 2
Average book value = $11,700,000
AAR = Average net income / Average book value
AAR = $2,010,000 / $11,700,000
AAR = 17.18%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.