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27 October, 05:10

Tiberius Manufacturing is considering two alternative investment proposals with the following dа ta: Proposal X Proposal Y Investment $ 11 comma 600 comma 000 $ 480 comma 000 Useful life 5 years 5 years Estimated annual net cash inflows for 5 years $ 2 comma 320 comma 000 $ 95 comma 000 Residual value $ 54 comma 000 $ 24 comma 000 Depreciation method Straightminusline Straightminusline Required rate of return 14 % 14 % Calculate the accounting rate of return for Proposal Y. (Round any intermediate calculations and your final answer to two decimal places.)

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  1. 27 October, 05:29
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    1.51%

    Explanation:

    The computation of the accounting rate of return is shown below:

    Accounting rate of return = Average annual profit : average investment

    where,

    Average annual profit is

    = Estimated annual net cash inflows for 5 years - annual depreciation

    = $95,000 - ($480,000 - $24,000) : 5 years

    = $95,000 - $91,200

    = $3,800

    And, the average annual investment is

    = (Initial Investment + Scrap Value) : 2

    = ($480,000 + $24,000) : 2

    = $252,000

    Now placing these values to the above formula

    So, the accounting rate of return is

    = $3,800 : $252,000

    = 1.51%
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