Hello, Crichton Publications uses the accounting rate of return method to evaluate proposed capital investments.  The company's desired rate of return is 17.0%.  The project being evaluated involves a new product that will have a three-year life.  The investment required is $370,000, which consists of $240,000 machine and inventories and accounts receivable totaling $130,000.  The machine will have a useful life of three years and a salvage value of $167,500.  The salvage value will be received during the fourth year, and the inventories and accounts receivable related to the product also will be converted back to cash in the fourth year.  Accrual accounting net income from the product will be $94,000 per year, before depreciation expense, for each of the three years.  Because of the time lag between selling the product and collecting the accounts receivable, cash flows from the product will be as follows.  Use the following table (present value table).  (Use appropriate factor(s) from the tables provided.  Round the PV factors to 4 decimal places). 1st year $49,000 2nd year 79,000 3rd year 94,000 4th year 67,000 Question a-1: Calculate the accounting rate of return for the first year of the product.  Assume straight-line depreciation.  (Do not round intermediate calculations.  Round your answer to 2 decimal places). Accounting rate of return: ??? Question b-1: Calculate the net present value of the product using a discount rate of 17.0% and assuming that cash flows occur at the end of the respective years.  Negative amounts should be indicated by a minus sign.  Do not round intermediate calculations. Net present value: ??? thanks...

Question

Hello,

Crichton Publications uses the accounting rate of return method to evaluate proposed capital investments.  The company's desired rate of return is 17.0%.  The project being evaluated involves a new product that will have a three-year life.  The investment required is $370,000, which consists of $240,000 machine and inventories and accounts receivable totaling $130,000.  The machine will have a useful life of three years and a salvage value of $167,500.  The salvage value will be received during the fourth year, and the inventories and accounts receivable related to the product also will be converted back to cash in the fourth year.  Accrual accounting net income from the product will be $94,000 per year, before depreciation expense, for each of the three years.  Because of the time lag between selling the product and collecting the accounts receivable, cash flows from the product will be as follows.  Use the following table (present value table).  (Use appropriate factor(s) from the tables provided.  Round the PV factors to 4 decimal places).

1st year $49,000
2nd year 79,000
3rd year 94,000
4th year 67,000

Question a-1: Calculate the accounting rate of return for the first year of the product.  Assume straight-line depreciation.  (Do not round intermediate calculations.  Round your answer to 2 decimal places).

Accounting rate of return: ???

Question b-1: Calculate the net present value of the product using a discount rate of 17.0% and assuming that cash flows occur at the end of the respective years.  Negative amounts should be indicated by a minus sign.  Do not round intermediate calculations.

Net present value: ???

thanks... 

Expert Answer

Want to see the step-by-step answer?

See Answer

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Answer
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.
Tagged in
BusinessAccounting

Accounting Standards

Related Accounting Q&A

Find answers to questions asked by student like you

Q: I'm having trouble finding the value for the inventory balance as of january 31st for the cost of fi...

A: Finished goods inventory are completely ready for sale after completing the manufacturing process.

Q: At December 31, 2018, Burr AG owes €500,000 on a note payable due February 2019. (a) If Burr intends...

A: Current liability: Current liability is an obligation that the companies need to pay from the remain...

Q: Work-in-Process Inventory, November 1 45,000 units Work-in-Process Inventory, November 30 23...

A: Units completed and transferred inventory:Units completed and transferred inventory represents the n...

Q: Cash collections from customers$710  Purchase of used equipment 155  Depreciation expense 155  Sale ...

A: Cash flow from Invetsing activity means the cash inflow or outflow made by an organisation in purcha...

Q: I'm having trouble finding the missing values for the on company and off company sections, letters a...

A: Click to see the answer

Q: Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods...

A: The Taxable Income needs to be calculated by subtracting the depreciation from  Pretax income. Once ...

Q: How do I solve this problem? I attempted it and got 79,100 for my final answer but I'm not sure if I...

A: Cash flow statement: Cash flow statement displays the summary of all inflows and outflows of cash in...

Q: I need help solving this problem. The entire question did not fit in the screen grab I took so I cop...

A: a)  Prepare a cost of production report: 

Q: *Problem 11-2A (Part Level Submission)   The stockholders’ equity accounts of Cheyenne Corp. on ...

A: Calculating the value of dividends paid to common stockholder. We have,The value of dividend paid to...