fe (economic life) 5 Tax rate 0% Required rate of return on equity 10% Annual revenues $ 2,000,000 Operating expenses include only: “Other expenses” of $1,500,000, plus depreciation. Note annual operating margin. What is year 1: Return on Asset? Retur

fe (economic life) 5 Tax rate 0% Required rate of return on equity 10% Annual revenues $ 2,000,000 Operating expenses include only: “Other expenses” of $1,500,000, plus depreciation. Note annual operating margin. What is year 1: Return on Asset? Retur

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 14E

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

The firm is contemplating the following:

Crane acquisition cost $ 1,000,000

Years of useful life (economic life) 5

Tax rate 0%

Required rate of return on equity 10%

Annual revenues $ 2,000,000

Operating expenses include only: “Other expenses” of $1,500,000, plus depreciation.

Note annual operating margin.
What is year 1: Return on Asset? Return on Equity? EBITDA?

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