Calculate the accounting rate of return

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Reference no: EM13975936

You are considering purchasing a new production facility in order to expand operations. The building and machinery will cost $800,000 and be depreciated over 10 years using the straight-line method with no salvage value at the end of the equipment-life.

You require a 12% rate of return on the project. The cost and revenue information given below.

Revenues
$650,000
Less: Materials  70,000

Labor  150,000

Depreciation  80,000

Other 10,000
Income before taxes
$340,000
Taxes@ 40%
136,000
Net Income
$204,000

1. Determine the NPV of the new facility.

2. Calculate the IRR (approximate).

3. Calculate the payback period.

4. Calculate the accounting rate of return.

5. Cite all sources and or references

6. Taking into considerations all of the calculations above, will you invest in the new production facility? Why or why not? What nonfinancial information will you consider in your decision?

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The following assignment deals with evaluation of an investment decision by using various capital budgeting techniques like NPV and IRR along-with calculation of Pay-Back period. In addition, the accounting rate of return analysis has also been carried out and a recommendation has been made based on the financial analysis with some non-financial factors also considered.

Reference no: EM13975936

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