What is the accounting rate of return

Explain the steps on how to solve the problems given below (MCQ's):

1. Smitty Corp, whose required rate of return is 10%, is considering the purchase of a new piece of equipment. The internal rate of return of the project, which has a life of 8 years, is 12%. The project would have

A.an accounting rate of return greater than 10%.

B.a payback period more than 8 years.

C.a net present value of zero.

D.a net present value greater than zero.

2. How much would you need to deposit now in a savings account that earns 5% interest, compounded annually, in order to withdraw \$5,000 at the end of every year for ten years?

A.\$47,619

B.\$47,500

C.\$38,609

D.\$50,000

3. Summit Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of \$159,600. The equipment will have an initial cost of \$532,000 and have a 7 year life. If the salvage value of the equipment is estimated to be \$14,000, what is the accounting rate of return?

A.30.00%

B.47.11%

C.152.37%

D.19.28%

4.Hiawatha Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of \$200,000. The equipment will have an initial cost of \$900,000 and have a 6 year life. There is no salvage value for the equipment. If the hurdle rate is 8%, what is the approximate net present value? Ignore income taxes.

A.\$924,580

B.\$300,000

C.\$24,580

D.\$900,000

5. Albertville Inc produces leather handbags. The production budget for the next four months is: July 5,000 units, August 7,000, September 7,500, October 8,000. Each handbag requires 1.3 hours of unskilled labor (paid \$8 per hour) and 2.2 hours of skilled labor (paid \$15 per hour). How much will be paid to skilled labor during the three months July - September?

A. \$742,500

B.\$292,500

C.\$4,387,500

D.\$643,500