Raas Hardware is adding a new product line that will require an investment of $1,454,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $310,000 the first year, $290,000 the second year, and $240,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%.) (1) ÷ (2) = ARR ÷ = % (1) Amount invested Average amount invested Average annual operating income Present value of net cash inflows (2) Amount invested Average amount invested Average annual operating income Present value of net cash inflows
Raas Hardware is adding a new product line that will require an investment of $1,454,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $310,000 the first year, $290,000 the second year, and $240,000 each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places. Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%.) (1) ÷ (2) = ARR ÷ = % (1) Amount invested Average amount invested Average annual operating income Present value of net cash inflows (2) Amount invested Average amount invested Average annual operating income Present value of net cash inflows
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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Question
Raas
Hardware is adding a new product line that will require an investment of
$1,454,000.
Managers estimate that this investment will have a 10-year life and generate net $310,000
the first year,
$290,000
the second year, and
$240,000
each year thereafter for eight years. Assume the project has no residual value. Compute the ARR for the investment. Round to two places.Select the formula, then enter the amounts to calculate the ARR (accounting rate of return) for the new product line. (Round ARR to the nearest hundredth percent [two decimal places], X.XX%.)
(1)
|
÷
|
(2)
|
=
|
ARR
|
|
|
÷
|
|
=
|
|
%
|
(1)
Amount invested
Average amount invested
Average annual operating income
Present value of net cash inflows
(2)
Amount invested
Average amount invested
Average annual operating income
Present value of net cash inflows
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