Hi guys... I'm being thinking the whole night... but i still
can't figure out the way to do it... can anyone please teach me
pls? I know how it goes about doing a simple ARR but definately not
this...
Here's the Information given:
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Proposal to purchase new equipment
MACHINE A
Outright purchase $250,000
Expected useful life 9 years
Expected returns---------Years 1-3----------$50,000 per year
----------------------------------Years 4-6----------$75,000 per
year
----------------------------------Years 7-9----------$60,000 per
year
Running costs (including labour)
----------------------------------Years 1-6----------$15,000 per
year
----------------------------------Years 7-9----------$18,000 per
year
MACHINE B
Outright purchase $380,000
Expected useful life 12 years
Expected returns--------Years 1-4----------$70,000 per year
---------------------------------Years 5-8----------$90,000 per
year
---------------------------------Years 9-12---------$75,000 per
year
Running costs (including labour)
---------------------------------Years 1-4----------$18,000 per
year
---------------------------------Years 5-8----------$24,000 per
year
---------------------------------Years 9-12---------$30,000 per
year
Note: for each proposal there will be an initial training cost of
$8,000 for the first year only.
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Here's the question:
Q1.
Using the information provided, calculate the Accounting Rate of
Return (A.R.R) % for each of the proposals. [8
Marks]
Q2.
State, with reasons, which of the proposals should be implemented.
[4 Marks]
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I would really appreciate your helps!!!
