Self-Study Problem 10.03 a1-a2 Blossom Corp. management is considering purchasin
ID: 2810810 • Letter: S
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Self-Study Problem 10.03 a1-a2 Blossom Corp. management is considering purchasing a machine that will cost $117,250 and will be depreciated on a straight-line basis over a five-year period. The sales and expenses (excluding depreciation) for the next five years are shown in the following table. The company's tax rate is 34 percent. Year 1 Year 2 Year 3 Year 4 Year 5 Sales$124,450 $174,875 $237,455$251,440 $263,125 Expenses $140,410 $130,488 $137,289 $140,112 $129,556 Blossom will accept all projects that provide an accounting rate of return (ARR) of at least 45 percent. Calculate accounting rate of return. (Round answer to 1 decimal place, eg, 15.2%.) Accounting rate of return Should the company accept the project? Blossom should the project. Click if you would like to Show Work for this question: Open Show WorkExplanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Year 1 Year 2 Year 3 Year 4 Year 5 Sales 124,450.00 174,875.00 237,455.00 251,440.00 263,125.00 Less Expenses 140,410.00 130,488.00 137,289.00 140,112.00 129,556.00 Less Depreciation = 117,250/5 23,450.00 23,450.00 23,450.00 23,450.00 23,450.00 Income before tax (39,410.00) 20,937.00 76,716.00 87,878.00 110,119.00 Tax at 34% 13,399.40 (7,118.58) (26,083.44) (29,878.52) (37,440.46) Income after tax (52,809.40) 28,055.58 102,799.44 117,756.52 147,559.46 Average Return = 68,672.32 ARR = Average Return during period / Average Investment Average Investment = (BV at beginning + BV at end)/2 Average Investment = (117,250 + 0)/2 Average Investment = 58,625 Average return = 68,672.32 ARR = 68,672.32/58,625 ARR = 117.14% Blossom should accept the project as ARR of 117.14% is greater than 45%
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