A project with a useful life of eight years requires an investment of $200,000 and yields after tax income of $30,000 a year. Theproject's accounting rate of return is:BD15%20%30%None of the above

hence for the calculation of the Accounting rate of return:Investment= 200000/-Income tax= after…

Answered: A project with a useful life of eight…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 15EA: Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years....

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The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
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A project with a useful life of eight years requires an investment of $200,000 and yields after tax income of $30,000 a year. The project's accounting rate of return is: (A) 15% B 20% C) 30% None of the above