Peter put forward an investment proposal to his boss. The business uses ARR to assess investment proposals using a minimum 'hurdle' rate of 27 per cent. Details of the proposal were: Cost of equipment £200,000. Estimated residual value of equipment £40,000. Average annual operating profit before depreciation £48,000. Estimated life of project 10 years. Annual straight-line depreciation charge £16,000 (that is, (£200,000 - £40,000)/10). The ARR of the project will be:
Peter put forward an investment proposal to his boss. The business uses ARR to assess investment proposals using a minimum 'hurdle' rate of 27 per cent. Details of the proposal were: Cost of equipment £200,000. Estimated residual value of equipment £40,000. Average annual operating profit before depreciation £48,000. Estimated life of project 10 years. Annual straight-line depreciation charge £16,000 (that is, (£200,000 - £40,000)/10). The ARR of the project will be:
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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Peter put forward an investment proposal to his boss. The business uses ARR to assess investment proposals using a minimum 'hurdle' rate of 27 per cent. Details of the proposal were:
Cost of equipment £200,000. Estimated residual value of equipment £40,000. Average annual operating profit before
The ARR of the project will be:
- 5%
- 5%
- 7%
- 7%
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