In my accounting class I am learning to find accounting rate of return. To solve for this I subtracted net cash flow- the salvage value divided by the initial investment. Have I done something incorrect? Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, andtime horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (FutureValue of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from thetables provided.)Project 1: Retooling Manufacturing FacilityThis project would require an initial investment of $4,920,000. It would generate $928,000 in additional net cash flow eachyear. The new machinery has a useful life of eight years and a salvage value of $1,870,000.Project 2: Purchase Patent for New ProductThe patent would cost $3,645,000, which would be fully amortized over five years. Production of this product would$583,200 additional annual net income for Hearne.generateProject 3: Purchase a New Fleet of Delivery TrucksHearne could purchase 25 new delivery trucks at a cost of $141,600 each. The fleet would have a useful life of 10 years, andeach truck would have a salvage value of $5,700. Purchasing the fleet would allow Hearne to expand its customer territoryresulting in $234,000 of additional net income per year.Required:1. Determine each project's accounting rate of return.2. Determine each project's payback pgriod.3. Using a discount rate of 10 percent, calculate the net present value of each project.4. Determine the profitability index of each project and prioritize the projects for Hearne. Required:1. Determine each project's accounting rate of return.2. Determine each project's payback period.3. Using a discount rate of 10 percent, calculate the net present value of each project.4. Determine the profitability index of each project and prioritize the projects for Hearne.Complete this question by entering your answers in the tabs below.Required 1Required 2Required 3Required 4Determine each project's accounting rate of return. (Round your answers to 2 decimal places.)Accounting Rate ofReturnProject 111.11 %Project 22.78 %Project 368.87 %Required 1Required 2 >

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Description: In my accounting class I am learning to find accounting rate of return. To solve for this I subtracted net cash flow- the salvage value divided by the initial investment. Have I done something incorrect? Hearne Company has a number of potential cap

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counting class I am learning to find accounting rate of return. To solve for this I subtracted net cash flow- the salvage value divided by the initial investment. Have I done somethin

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1MAD: San Lucas Corporation is considering investment in robotic machinery based upon the following...

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Hearne Company has a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, management is finding it difficult to compare them. Assume straight line depreciation method is used. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Project 1: Retooling Manufacturing Facility This project would require an initial investment of $4,960,000. It would generate $964,000 in additional net cash flow each year. The new machinery has a useful life of eight years and a salvage value of $1,910,000. Project 2: Purchase Patent for New Product The patent would cost $3,785,000, which would be fully amortized over five years. Production of this product would generate $681,300 additional annual net income for Hearne. Project 3: Purchase a New Fleet of Delivery Trucks Hearne could purchase 25 new delivery trucks at a cost of $156,800 each.…
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