Start studying Accounting Rate of Return Approach. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Accounting rate of return formula ARR = (average incremental revenues - average incremental expenses) / initial (or average) investment Both incremental revenues and expenses in the numerator are determined using accrual accounting. Tam's predetermined minimum desired rate of return is 12%. The present value of an annuity of 1 at 12% for ten periods is 5.65. The present value of 1 due in ten periods at 12% is .322. Accrual accounting rate of return based on the initial investment is a. 30% b. 20% c. 12% d. 10% Accounting rate of return = annual after tax net income / annual average investment This method uses Net Income. What is the hurdle rate, also known as the minimum required rate of return or cost of capital? maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project in financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero. The capital budgeting analytical technique that calculates the rate of return on the investment based on the impact of the investment on the financial statements is known as the: A. internal rate of return. B. accounting rate of return. C. payback period. D. net present value.
Project A requires a $280,000 initial investment for new machinery with a five-year life and a salvage value of $30,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $20,000 per year for the next five years. Compute Project A's accounting rate of return.
Accounting rate of return = annual after tax net income / annual average investment This method uses Net Income. What is the hurdle rate, also known as the minimum required rate of return or cost of capital? maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project in financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero. The capital budgeting analytical technique that calculates the rate of return on the investment based on the impact of the investment on the financial statements is known as the: A. internal rate of return. B. accounting rate of return. C. payback period. D. net present value. Start studying Accounting Chapter 26. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Accounting rate of return (ARR) 3. Net present value (NPV) 4. Internal rate of return (IRR) Accounting Chapter 22 21 Terms. Rachel_Griswold1. Accounting Chapter 24 23 Terms. The company requires a rate of return of 14 percent and uses straight-line depreciation to a zero book value over the life of its equipment. Machine A has a cost of $512,000, annual aftertax cash outflows of $34,200, and a four-year life.
Accounting Rate of Return = $12,083 ÷ $130,000 ≈ 9.3% Example 2: Compare the following two mutually exclusive projects on the basis of ARR. Cash flows and salvage values are in thousands of dollars.
Accounting Rate of Return Method is otherwise known as Financial Statement Method or Un-adjusted Rate of Return Method. According to this method, capital projects are ranked in order of earnings. Projects which yield the highest earnings are selected and others are ruled out. 5. It does not taken into the consideration of cash inflows which are more important than the accounting profits. 6. It ignores the period in which the profits are earned as a 20% rate of return in 10 years may be considered to be better than 18% rate of return for 6 years.
maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project in financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero.
maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project in financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero. The capital budgeting analytical technique that calculates the rate of return on the investment based on the impact of the investment on the financial statements is known as the: A. internal rate of return. B. accounting rate of return. C. payback period. D. net present value. Start studying Accounting Chapter 26. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Accounting rate of return (ARR) 3. Net present value (NPV) 4. Internal rate of return (IRR) Accounting Chapter 22 21 Terms. Rachel_Griswold1. Accounting Chapter 24 23 Terms.
According to accounting rate of return method, the Fine Clothing Factory should purchases the machine because its estimated accounting rate of return is 17.14% which is greater than the management’s desired rate of return of 15%.
premium The price that the buyer of a call OR put option pays to. acquire the option is called the ______. premium The price that the writer of a call OR put option 18 Dec 2019 This also gives them a better idea of the rate at which their purchasing power increases or decreases. They can estimate their real rate of return 28 Jan 2020 The accounting rate of return (ARR) measures the amount of profit, or return, expected on investment as compared with the initial cost. Start studying Accounting Rate of Return Approach. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Accounting rate of return formula ARR = (average incremental revenues - average incremental expenses) / initial (or average) investment Both incremental revenues and expenses in the numerator are determined using accrual accounting.