Klein Dermatology is contemplating purchasing new laser therapy equipment.This new equipment would cost $300,000 to purchase and $20,000 for installation. Klein estimatesthat this new equipment would yield incremental margins of $98,000 annually due to new client servicesbut would require incremental cash maintenance costs of $10,000 annually. Klein expects the life of thisequipment to be 5 years and estimates a terminal disposal value of $20,000.Klein has a 25% income tax rate and depreciates assets on a straight-line basis (to terminal value) fortax purposes. The required rate of return on investments is 10%. Q. Calculate the accrual accounting rate of return based on average investment.
Klein Dermatology is contemplating purchasing new laser therapy equipment.
This new equipment would cost $300,000 to purchase and $20,000 for installation. Klein estimates
that this new equipment would yield incremental margins of $98,000 annually due to new client services
but would require incremental cash maintenance costs of $10,000 annually. Klein expects the life of this
equipment to be 5 years and estimates a terminal disposal value of $20,000.
Klein has a 25% income tax rate and
tax purposes. The required
Q. Calculate the accrual accounting rate of return based on average investment.
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