Ch 8 Drill You’re trying to determine whether or not to expand your business by
ID: 2714359 • Letter: C
Question
Ch 8 Drill
You’re trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $17.4 million, which will be depreciated straight-line to zero over its four-year life.
If the plant has projected net income of $1,755,000, $2,115,000, $1,974,000, and $1,296,000 over these four years, what is the project’s average accounting return (AAR)? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Avg. Accounting Return ____________%
2.
What is the IRR of the above set of cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Required:If the plant has projected net income of $1,755,000, $2,115,000, $1,974,000, and $1,296,000 over these four years, what is the project’s average accounting return (AAR)? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Avg. Accounting Return ____________%
2.
Consider the following cash flows: Year Cash Flow 0 –$ 32,000 1 14,200 2 17,500 3 11,600 Required:What is the IRR of the above set of cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Internal rate of return %Explanation / Answer
Ch 8 Drill You’re trying to determine whether or not to expand your business by