Suppose you are running a business and incur the following monthly expenses: labor costs are $80,000; raw materials and business supplies are 30,000; equipment leasing expenses are $7,000; finance charges on loans are $3,000. you are not paying rent, because you own the building in which you operate the business. if you had rented it out, however, you would have received $12,000 in rent income. you also estimate the value of your own time to equal $40,000. if the total revenue is $500,000, compute your economic and accounting profit?
explain the scope of managerial economics.
if the demand function for an industry is
d = 500 - .01q and its supply function is 5 + .04q, what will be its competitive equilibrium output and price levels?
suppose that a firm’s profit function is given by the following relationship: π = -25 + 100q1 + 95q2 – 10q12 – 5q22 – 5q1q2 where q1 and q2 are the respective quantities of the two products that the firm manufactures and sells.
determine:
a. the values of q1 and q2 that maximize π
b. the maximum value of π
Answers
The accounting profit of the business is $380,000.
The competitive equilibrium price level is $410.
Economic Profit:
Economic profit is the difference between total revenue and all costs, including opportunity costs. Opportunity costs refer to the value of the next best alternative that is forgone when making a decision. In this scenario, the economic profit can be calculated as follows:
Total Revenue = $500,000
Total Costs = Labor costs ($80,000) + Raw materials and business supplies ($30,000) + Equipment leasing expenses ($7,000) + Finance charges on loans ($3,000) + Opportunity cost of not renting the building ($12,000) + Opportunity cost of the owner's time ($40,000) = $172,000
Economic Profit = Total Revenue - Total Costs = $500,000 - $172,000 = $328,000
Therefore, the economic profit of the business is $328,000.
Accounting Profit:
Accounting profit is the difference between total revenue and explicit costs, which include all actual expenses incurred in running the business. In this scenario, the accounting profit can be calculated as follows:
Total Revenue = $500,000
Total Explicit Costs = Labor costs ($80,000) + Raw materials and business supplies ($30,000) + Equipment leasing expenses ($7,000) + Finance charges on loans ($3,000) = $120,000
Accounting Profit = Total Revenue - Total Explicit Costs = $500,000 - $120,000 = $380,000
Therefore, the accounting profit of the business is $380,000.
Scope of Managerial Economics:
Managerial economics is the application of economic principles and theories to aid decision-making in a business setting. It involves the use of economic analysis to solve business problems and make optimal decisions. The scope of managerial economics includes demand analysis, production analysis, cost analysis, pricing decisions, profit analysis, capital budgeting, and risk analysis. In this scenario, the owner of the business could use managerial economics principles to maximize profits by analyzing costs, pricing decisions, and production levels.
Competitive Equilibrium Output and Price Levels:
The demand function for an industry is d = 500 - 0.01q, and its supply function is 5 + 0.04q. To determine the competitive equilibrium output and price levels, we need to find the quantity at which the demand and supply functions intersect. This is the point where the market is in equilibrium, and the price and quantity will be stable.
Setting the demand function equal to the supply function:
500 - 0.01q = 5 + 0.04q
0.05q = 495
q = 9,900
Therefore, the competitive equilibrium output level is 9,900 units. To find the equilibrium price, we can substitute the equilibrium quantity into either the demand or supply function:
Price = 500 - 0.01(9,900) = $410
Therefore, the competitive equilibrium price level is $410.
Maximizing Profit:
The profit function of the firm is given by: π = -25 + 100q1 + 95q2 – 10q1^2 – 5q2^2 – 5q1q2, where q1 and q2 are the quantities of the two products that the firm produces and sells. To determine the values of q1 and q2 that maximize profit
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Related Questions
prepare a double entry ledger entries January 3 took out of the cash till$50 and put into the business by cheque Jan 4 the proprietor put a further$5000 in to business by cheque .please I need it quick
Answers
Explanation:
In the first entry, $50 is taken out of the cash till and put into the business as drawings. The effect is a decrease in the cash balance and an increase in the drawings account.
In the second entry, the proprietor puts a further $5000 into the business by cheque. The effect is an increase in the capital account and an increase in the bank balance.
It's important to note that "Drawings" and "Capital" are the accounts used to record the personal transactions of the business owner in this case, it is assumed that the business is a proprietorship. Other forms of business may have different accounts to record the personal transactions of the owne
Part C
In the video, for which federal program does President Obama announce an extension of funding? (edmentum)
Answers
Answer:
He is extending funding for unemployment insurance.
Explanation:
edmentum/plato
Answer:
In the video, President Obama is extending funding for unemployment insurance.
Explanation:
breyona keeps a close eye on her company’s internal and external environments to identify better ways of doing business and to discover possible opportunities for new products. in which activity is breyona engaged?
Answers
Strategic control activity is being engaged by Breyona. Thus, option C is correct.
What are the new products?A new product is an item that is new to the organization presenting it, despite the fact that it might have been made in the same structure by others.
Business and to find potential open doors for new items. Breyona has a critical control action locked in. It is a specific type of board control and varies depending on the type of executive in charge.
Strategic control processes permit directors to assess an organization's showcasing program from a basic long-term viewpoint. Therefore, option C is correct.
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The question is incomplete, Complete question probably will be:
Breyona keeps a close eye on her company's internal and external environments to identity better ways of doing business and to discover possible opportunities for new products, in which activity is Breyon engaged? a. SWOT analysis b. VRIO wote c. strategic control d. management by observation
Why are personal care aides expected to be paid so little in spite of being in such great demand?
Answers
Answer: Because they were the least educated, (something to do with that).
Explanation:
Aiden has a gross income of $63,000 and takes the standard deduction. Their total taxes due are $6,922. What is their marginal tax rate
Answers
Answer:
922Explanation:
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Help please, Reply as soon as possible !
Answers
Answer:
accounts payable
Explanation:
my mom uses it shes an accountant so it must be good
Pam's business earns 33,000 per month. Pam's non-employee expenses are $13,500 per month. If Pam wants $4,500 in profit per month, how many employees can she employ if each employee costs $3,000 per month?
Answers
The number of employee that she can employ if each employee costs $3,000 per month is 5 employees.
Using this formula
Number of employee=Business amount earn per month-Non -employee expenses per month-Profit per month/Employee cost
Let plug in the formula
Number of employee=$33,000-$13,500-$4,500/3,000
Number of employee=$15,000/3,000
Number of employee=5 employees
Inconclusion the number of employee that she can employ if each employee costs $3,000 per month is 5 employees.
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Which is a characteristic of judging approach
Answers
Answer:
Clarity and Closure
Explanation
Judgers take a planned, ordered, and precisely calibrated approach to life, developing both short- and long-term plans to assist them in achieving their objectives. For them, schedules and "to-do" lists are consoling. They dislike uncertainty and change, preferring to know what they are getting into instead.
Those that have this preference feel more in control of their surroundings. They are disciplined and resolute, seeking resolution as soon as possible to reduce stress. Judgers struggle with open-ended plans because they have a "work first-play later" mentality. Instead of addressing issues as they arise, they would prefer to devise three distinct backup plans.
Judgers take their obligations and deadlines very seriously, both in business and in life. They are quite particular.
How to solve attempted relative import beyond top level package?
Answers
The error "attempted relative import beyond top-level package" occurs in Python when you try to import a module that is located outside of the current package. In Python, relative imports are only allowed within the same package, and you cannot use relative imports to reach outside of the current package.
To solve this error, you have a few options:
Use an absolute import: You can use an absolute import by including the full package name before the module name. For example, if you have a module "module1.py" in a package "package1", you can import it using the following syntax: "from package1 import module1".
Use sys.path: You can add the location of the module to the sys.path list, which tells Python where to look for modules. This can be done by adding the following line at the top of your code: "import sys; sys.path.append('/path/to/module')".
Move the module to the same package: If possible, you can move the module to the same package as the code you are trying to import it from. This way, you can use a relative import.
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Julia received her credit report and sees that her FICO score is 475. What might that mean? (5 points)
a.Multiple Choices
b.She has a high available credit.
c.She makes most payments on time.
d.She applied for a second small loan in the last five years.
e.She had a garnishment of wages last year.
Answers
A 475 FICO Score is much lower than the national average credit score. Many lenders refuse to work with consumers whose credit ratings are in the Very Poor area because they have negative credit. Thus, the correct option is (e) She had a garnishment of wages last year.
What is a good FICO credit score?A FICO score, often known as a credit score, is a number used to assess someone's creditworthiness. This is used by financial institutions and lenders to determine how much credit to extend to a borrower and at what interest rate. FICO scores range between 300 and 850, with higher values indicating better credit. Depending on the credit scoring system, credit scores ranging from 580 to 669 are deemed fair; 670 to 739 are considered good; 740 to 799 are considered very good, and 800 and beyond are considered extraordinary.
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Which of the following do leaders need to do in the planning phase of the performance management cycle? (Check all that apply.)
a. Make very explicit links between follower performance and team or organizational outcomes.
b. Set clear, measurable, and agreed-upon goals for the what and how of follower performance.
Answers
In the planning phase of the performance management cycle, leaders need to do the following:
a. Make very explicit links between follower performance and team or organizational outcomes.
b. Set clear, measurable, and agreed-upon goals for the what and how of follower performance.
In the planning phase of the performance management cycle, leaders play a crucial role in setting the direction and expectations for their followers. By making explicit links between follower performance and team or organizational outcomes (option a), leaders ensure that their team members understand how their individual contributions impact the overall success of the team or organization.
This alignment helps create a sense of purpose and motivation among the followers, as they can see the direct connection between their efforts and the desired outcomes.
Additionally, leaders need to set clear, measurable, and agreed-upon goals for follower performance (option b). These goals should be specific, achievable, and aligned with the overall objectives of the team or organization. Clear goals provide followers with a clear understanding of what is expected of them, while measurable goals enable leaders to track progress and provide feedback.
When goals are agreed upon, it promotes a collaborative approach where leaders and followers can have a shared understanding of expectations, fostering a sense of ownership and commitment.
By incorporating these two actions into the planning phase, leaders can effectively align individual and team goals with organizational objectives, ensuring that performance management efforts are focused and purposeful.
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Why is buying on the black market difficult
Answers
Answer:
Buying on the black market can be difficult for a variety of reasons. One reason is that it is illegal, so it is not conducted in an open and regulated marketplace. This can make it difficult to find trustworthy sellers and to ensure that the products or services being purchased are of good quality. Additionally, transactions on the black market are often conducted in cash and in secret, which can make them more vulnerable to fraud and theft. Finally, the risk of being caught and facing legal consequences can be a significant deterrent for many people.
Buying any type of goods or services on the black market is difficult because it's not legal.
Black markets are rampant because citizens want to buy things that are difficult to come by through legal channels.The underground market's many drawbacks include the risk of fraud, the possibility of violence, and being saddled with counterfeit goods or adulterated products, which is especially dangerous in the case of medications.
Because tax evasion or participation in a black market activity is illegal, participants attempt to hide their behavior from the government or regulatory authority. Cash is the preferred medium of exchange in illegal transactions since cash transactions are less-easily traced.
Not including a warning label about choking hazards on the box of a new toy
is an example of a defect issue.
0
A. marketing
B. warranty
c. manufacturing
o
D. design
Answers
The warning label should inform customers of the risk and offer guidance on how to use the product safely. Thus, option A is correct.
What warning label about choking hazards in marketing?In the US, warning labeling laws must include everything from fall and strangling threats to suffocation hazards and small parts.
This manual provides a succinct explanation of the warning labeling regulations for children's products in the US.
Because of this, the American National Standards Institute mandates that warning labels on products provide the following information: Potential dangers and their seriousness.
Not all items need to carry warning labels, but those that could be harmful or pose a risk to consumers must.
Therefore, marketing is not including a warning label about choking hazards on the box of a new toy is an example of a defect issue.
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Answer: MArketing would be the answer
Explanation: I just took the test
clara meets her client jonathon for a business presentation at a café suggested by him. as soon as their meeting begins, the café gets very crowded and noisy. they are unable to concentrate on their discussion. which of the following should clara do to prevent a communication breakdown with her client?
Answers
Clara meets her purchaser Jonathon for a enterprise presentation at a restaurant cautioned through him. as quickly as their meeting starts the cafe gets very crowded and noisy. they're not able to concentrate on their discussion. which of the subsequent must Clara do to save you a communication breakdown along with her patron advise that they flow to a quieter place.
The final degree of the selling technique is compliance with-up. After Clara have got correctly made a sale it's critical to keep music of the patron's adventure. Following up is an vital step in ensuring consumer delight, retaining clients, or even supporting we find new clients within the destiny.
The speakme-listening differential can be used to expect the communication of moments of silence in order to probably arise within the earnings presentation. Many clients have a picture of salespeople as loud, speedy-speakme people, which can be preferred active listening characteristics of salespeople.
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Please select the steps involved in GOMS. (Multiple answers possible) Measures. Selections. Operators. Goals. Methods. Options. What are some of the advantages of a Heuristic Evaluation? (Multiple answers possible) Combines well with other evaluations methods. Can be cheap. Simple to perform. Generates quantitative insights. Requires in-person user testing. Can be done by anyone. Why is it important to keep your audience in mind when you communicate research results? (Multiple answers possible) You need to make sure to tell everybody what they want to hear. It doesn't matter how great of an insight you have if no one understands it. Knowing what main takeaways and insights to communicate to the individual audience can increase stakeholder buy-in. It doesn't matter.
Answers
GOMS steps: Goals, Operators, Methods, Selections.
Advantages of Heuristic Evaluation: Can be cheap, Simple to perform, Combines well with other evaluation methods. Importance of audience in communicating research results: Knowing what main takeaways and insights to communicate to the individual audience can increase stakeholder buy-in.
GOMS (Goals, Operators, Methods, Selections) is a cognitive modeling technique used to analyze human-computer interaction. It involves breaking down tasks into these components to estimate task completion time and identify potential usability issues. Heuristic Evaluation is a usability inspection method where evaluators assess a system's user interface against a set of usability principles or heuristics. Advantages of heuristic evaluation include its cost-effectiveness, simplicity in execution, and compatibility with other evaluation methods, allowing for comprehensive usability assessments.
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Upon dissolution of the partnership, one -third of the goes to each of its three founding partners. Since Partner Abel is deceased, his portion is split evenly among his four heirs. What portion of the company's value does each of these heirs receive?
Answers
Upon the dissolution of the partnership, the portion that would have gone to Partner Abel is split evenly among his four heirs, resulting in each heir receiving 1/4th (25%) of the company's value.
In this scenario, with three founding partners and the dissolution of the partnership, the value of the company is divided equally among the partners, resulting in each partner initially receiving 1/3rd (33.33%) of the company's value.
However, since Partner Abel is deceased, his portion is distributed among his four heirs.
Since the portion that would have gone to Partner Abel is now split evenly among his four heirs, each heir would receive an equal share. Therefore, each heir receives 1/4th (25%) of the company's value. This distribution ensures fairness and equal treatment among Partner Abel's heirs.
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Please help worth bonus points!
Answers
Answer:
the 4th and 5th one is for france
Explanation:
this is done in france France, it is called french silver service, it's a method of food service at the table, it's known as à l'anglaise (English service)
4=the staff utilizes platters to serve cooked food
5=the last one
1= america, the first one.
2=Russia
3=russia
if I got anything mixed up, pls inform me.
What is reality???????????????????????????????
Answers
Answer:
Reality is a state of consciousness and awareness whereby one can feel and comprehend his himself and his mind and his soul to live in.WARNING: if this is your exam question, please you might not pass with this answer. lolHope this helps
Good luck ALWAYS ✅.
May you help me with this business question I and very struggling
Answers
Answer:
availability of direct deposit
A company manufactures computer screens that utilize less electricity. Which form of technology would this be classified as?
A.
grid computing
B.
screenless display
C.
autonomic computing
D.
cloud computing
E.
green computing
Answers
Answer:
Green computing
Explanation:
A company manufactures computer screens that utilize less electricity. green computing form of technology would this be classified as. The correct option is E.
What are the five goals of green technology?Green technology lowers costs while improving product design, reducing waste, reducing our carbon footprint, and improving business efficiency. It also generates new jobs. A company creates computer screens with less electricity consumption.
Green computing also referred to as green technology, is the practice of using computers and other computing machinery in an environmentally and energy-friendly manner. Energy-efficient servers, peripherals, power systems, and central processing units (CPUs) are frequently used in businesses that employ green computing techniques.
Thus, the ideal selection is option E.
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Suppose you buy a round lot of Francesca Industries stock (100 shares) on 70 percent margin when the stock is selling at $20 a share. The broker charges a 13 percent annual interest rate, and commissions are 4 percent of the stock value on the purchase and sale. A year later you receive a $0.35 per share dividend and sell the stock for $29 a share. What is your rate of return on Francesca Industries? Do not round intermediate calculations. Round your answer to two decimal places.
Answers
The rate of return on Francesca Industries is 12.7%.
To find out the rate of return on Francesca Industries, the gain and the cost must be calculated, including any dividends received or interest paid. Given information:
Initial stock price = $20
Shares = 100
Initial margin requirement = 70%
Broker charges an annual interest rate = 13%
Commission is 4% on both purchase and sale price
Annual dividend per share = $0.35
Stock sold for = $29
Initially, the amount of the investment can be calculated by multiplying the number of shares by the stock price:
$20 x 100 shares = $2,000
The total cost of the stock including the margin is:
$2,000/0.70 = $2,857.
14The amount of the margin is:
$2,000 x 0.70 = $1,428.57
At 13% interest, the cost of borrowing the money for one year is:
$1,428.57 x 0.13 = $185.71
The total cost including interest and commission on the purchase is:
$2,857.14 + ($2,857.14 x 0.04) + ($2,000 x 0.04) + $185.71 = $3,189.13
A year later, the stock was sold for $29 a share, or $2,900 for 100 shares. The commission on the sale was:
$2,900 x 0.04 = $116
Dividends received were:100 shares x $0.35 per share = $35
The gain or loss on the sale can be calculated as:
Sale price − Total cost = $2,900 − $3,305.84
= −$405.84 (a loss)
The rate of return can be calculated as the percentage of the total cost that was lost:
$405.84 ÷ $3,189.13 = 0.127 (rounded to three decimal places)
Multiplying by 100 gives a rate of return of:12.7% (rounded to one decimal place)
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What is average fixed cost , average variable cost ,average cost and marginal cost??
Answers
Answer:
Since the fixed cost does not change with the output, the average fixed cost decreases as the output increases. The average variable cost does not always increase in proportion to an increase in the output. Marginal costs also come down until 44 units are produced after which they start rising.
Explanation:
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when a channel member bypasses another member and sells or buys product directly, this is termed:
A) disintermediation
b) dual distribution
c) electronic marketing channels
Answers
When a channel member bypasses another member and sells or buys a product directly, this is termed disintermediation.
Option (b) is correct.
Disintermediation is the process of eliminating intermediaries or middlemen from a supply chain or distribution channel. In the context of marketing channels, it refers to a situation where a channel member, such as a retailer or wholesaler, is bypassed and the manufacturer or supplier sells or buys the product directly to or from the end customer.
Disintermediation can occur due to a variety of reasons, such as the increasing popularity of e-commerce platforms, which allow manufacturers and suppliers to sell their products directly to customers without the need for intermediaries. Disintermediation can have both positive and negative impacts on channel members, depending on their position and role within the channel. It can lead to increased efficiency and cost savings, but it can also lead to channel conflict and the loss of business for intermediaries who are bypassed.
Therefore, option (b) is correct.
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A firm using paid, non-personal communication by identified sponsors through various media has chosen to use _ to promote its products.
Answers
Answer: Advertising
Explanation:
Organization do have different ways they promote their products. A firm that is using paid, non-personal communication by identified sponsors through various media has chosen to use advertising to promote its products.
Advertising ia commonly described as any paid, nonpersonal communication via the used of different media by organizations and individuals who are in some way known in the message.
A good and successfully operated campaign needs all activities to be well-coordinated so as to build on one another to increase the overall impact.Advertising uses a lot of related, well-timed, carefully placed television ads along with print advertising in some magazines and newspaper.
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according to the fasb statement of concepts, expenses may be recognized when they are
Answers
According to the FASB Statement of Concepts, expenses may be recognized when they are incurred.
The FASB Statement of Concepts defines expenses as outflows or other using up of assets or incurrences of liabilities that constitute the entity's ongoing major or central operations. Expenses can be recognized in the financial statements when they are incurred, meaning when the underlying goods or services have been received or consumed, or when the obligation to pay has been incurred. This recognition may occur in the same period as the related revenues or in a different period. The matching principle requires that expenses be recognized in the same period as the related revenues whenever it is reasonable and practicable to do so. However, in some cases, expenses may be recognized in a different period from the related revenues if this better reflects the underlying economics of the transaction or event.
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Find the effective rate of interest if payments of 300 at the present, 200 at the end of one year, and 100 at the end of two years accumulate to 800 at the end of three years.
Answers
Answer:
12.93%
Explanation:
Given that the amount of 300 is invested for 3 years, while the amount of 100 is invested for 2 years and 100 is invested for 1 year.
also amount accumulated in three years = 800
Applying the formula to find the future value we get
300(1+r)^3 + 200(1+r)^2 + 100(1+r) = 800
which can be further simplified to
300r^3+1100r^2+1400r+600=800
where, r is the effective rate of interest which we have to find out
The above equation is cubic in r, so to solve this we can use equation solver. When we put this equation in equation solver we get
r = 0.12926
r ≅ 0.1293
Therefore, effective rate of interest = 12.93%
Imagine that you were reading an international marketing text in which you learned
that the GDP for a nation that was a member of the former Soviet Union was $1.56
billion. A few pages later in the same text, the book states that that nation's real GDP
was $800,000. From reading this information, you would know that:
Answers
Answer: this former member of the Soviet Union had a high rate of inflation
Explanation:
Real GDP refers to the measuring of the gross domestic product of a country after it has been adjusted for inflation. On the other hand, the nominal GDP hasn't been adjusted for inflation and makes use of current prices.
Since the real GDP is $800,000 while the other GDP given is $1.56 billion, then it can be infered that this former member of the Soviet Union had a high rate of inflation. This is because when there's inflation, the average of all the prices of the goods and services will rise which is depicted by the difference in the GDP given.
on january 2, year 3, arch and bean contributed cash equally to form the jk partnership. arch and bean share profits and losses in a ratio of 75% to 25%, respectively. for year 3, the partnership's net income was $40,000. a distribution of $5,000 was made to arch during year 3. jk paid arch and bean each a guaranteed payment of $6,000 for services rendered to the partnership. what amount of income will arch report from the partnership in year 3?
Answers
Arch will report $19,000 of income from the partnership in year 3.
To determine the amount of income that Arch will report from the partnership in year 3, we first need to calculate the total income of the partnership and then calculate Arch's share of that income based on the profit-sharing ratio.
From the given information, we know that the partnership's net income for year 3 was $40,000.
This means that the total income of the partnership before any distributions or guaranteed payments was $40,000.
Next, we need to calculate the amount of income that Arch is entitled to based on the profit-sharing ratio of 75% to 25% between Arch and Bean.
To do this, we can use the following formula:
Arch's share of income = Total income x Arch's profit-sharing ratio
Arch's share of income = $40,000 x 75%
Arch's share of income = $30,000
So Arch is entitled to $30,000 of the partnership's income for year 3.
However, we also need to take into account the distributions and guaranteed payments made to Arch during year 3.
A distribution of $5,000 was made to Arch, which means that he has already received that amount of income from the partnership.
Additionally, Arch was paid a guaranteed payment of $6,000 for services rendered to the partnership.
Therefore, to calculate the amount of income that Arch will report from the partnership in year 3, we need to subtract the distributions and guaranteed payments he received from his share of the partnership's income:
Arch's income from partnership = Arch's share of income - Distributions - Guaranteed payments
Arch's income from partnership = $30,000 - $5,000 - $6,000
Arch's income from partnership = $19,000
So Arch will report $19,000 of income from the partnership in year 3.
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give four reason as to why being an entrepreneur is beneficial than a doing a job
Answers
Answer:
Hope this helps!
4 reasons:
Explanation:
1) Being an entrepreneur is beneficial because it helps you get to know yourself better. You get to be your own boss.
2) Entrepreneurs get to make their own schedule. You can work for flexible hours.
3) You get to be more independent. Taking entrepreneurship will grant you freedom.
4) Choosing to be an entrepreneur is a big risk. This means your taking a challenge in your life. You'll make yourself stronger!
The best part though? It is a big satisfaction when you succeed, yeah and you'll definitely be proud of yourself.
Your company is planning to purchase a new log splitter for its lawn and garden business. The new splitter has an initial investment of $81,000. It is expected to generate $10,000 of annual cash flows, provide incremental cash revenues of $152,437, and incur incremental cash expenses of $130,000 annually.
What is the payback period and accounting rate of return (ARR)? Round your answers to 1 decimal place.
Answers
The payback period for the new log splitter would be 8.1 years and the accounting rate of return would be 27.7%.The payback period can be calculated by dividing the initial investment by the annual cash flows generated by the investment.
The accounting rate of return (ARR) can be calculated by dividing the average annual net income generated by the investment by the initial investment and expressing the result as a percentage. To calculate the average annual net income, we need to subtract the incremental cash expenses from the incremental cash revenues, which gives us $22,437. Then, we divide this by the number of years (1) to get the average annual net income of $22,437.
The ARR would be 27.7% ($22,437 average annual net income / $81,000 initial investment x 100%).
Therefore, the payback period for the new log splitter would be 8.1 years and the accounting rate of return would be 27.7%.
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