Quentin giordano owns a small retail ice cream parlor he is

Assignment Help Accounting Basics

Reference no: EM13598806

Quentin Giordano owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Giordano to offer frozen yogurt to customers. The machine would cost $4,50 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $2,970 and $450, respectively.

Alternatively, Mr. Giordano could purchase for $5,040 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappucino are expected to be $4,140 and $1,215, respectively.

Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20%.

Required

a. Determine the payback period and unadjusted rate of return (use average investment) for each alternative.

b. Indicate which investment alterative you would recommend. Explain your choice.

Reference no: EM13598806

Questions Cloud

On dec 312008 xyz corp had 600000 shares of common stock : on dec 31.2008 xyz corp had 600000 shares of common stock and 300000 shares of 8 noncumulativenonconvertible prreferd

On january 1 2010 metco inc had issued an outstanding : on january 1 2010 metco inc. had issued an outstanding 574600 shares of 2 par value common stock. on march 15 2010

The following information provides the amount of cost : the following information provides the amount of cost incurred in may for the cost items indicated. during may 16000

Sophia sweeny the president of sweeny enterprises is : sophia sweeny the president of sweeny enterprises is considering two investment opportunities. because of limited

Quentin giordano owns a small retail ice cream parlor he is : quentin giordano owns a small retail ice cream parlor. he is considering expanding the business and has identified two

The collins corporation just started business in january of : the collins corporation just started business in january of 2007. they had no beginning inventories. during 2007 they

Six years ago in dissolution of partnership bee partner joe : six years ago in dissolution of partnership bee partner joe received his pro rata share of inventory items held for

Jerry is a partner in the bent grass partnership at the : jerry is a partner in the bent grass partnership. at the close of the current year jerrys basis in the partnership is

June 1 the company issued 2133 shares of its common stock : june 1 the company issued 2133 shares of its common stock after acquiring from joe 42900 in cash computer equipment

User Account

All Pages