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1) Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investment $12,000,000 $600,000 Useful life 7 years 8 years Estimated annual net cash inflows for 5 years $2,000,000 $95,000 Residual value $60,000 $30,000 Depreciation method Straight-line Straight-line Required rate of return 12% 10% Calculate accounting rate of return for Proposal X and Proposal Y
1) Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data:
|
Proposal X |
Proposal Y |
|
|
Investment |
$12,000,000 |
$600,000 |
|
Useful life |
7 years |
8 years |
|
Estimated annual net cash inflows for 5 years |
$2,000,000 |
$95,000 |
|
Residual value |
$60,000 |
$30,000 |
|
Depreciation method |
Straight-line |
Straight-line |
|
Required rate of return |
12% |
10% |
Calculate accounting rate of return for Proposal X and Proposal Y.
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