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

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Managerial Accounting: What is the accounting rate of return
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