Posted: August 25th, 2016

what is the impact on the number of orders made during the year?

Hunziker Company is considering the purchase of wood cutting equipment. Data on the equipment are as follows:
Original investment $45,000
Net annual cash inflow $18,000
Expected economic life in years 5
Salvage value at the end of five years $4,500
The company uses the straight-line method of depreciation with no mid-year convention.
What is the accounting rate of return on original investment rounded to the nearest percent, assuming no taxes are paid?
a. 40%
b. 73%
c. 22%
d. 24%
19. Holloway Company is considering the purchase of a new machine for $40,000. The machine would generate an annual cash flow before depreciation and taxes of $15,647 for four years. At the end of four years, the machine would have no salvage value. The company’s cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate.
What is the accounting rate of return on the original investment in the machine approximated to two decimal points?
a. 14.12%
b. 8.47%
c. 39.12%
d. 16.92%
20. Which of the following methods uses income instead of cash flows?
a. payback
b. accounting rate of return
c. internal rate of return
d. net present value
21. Waterhouse Company decreased the size of inventory order quantities that had previously been determined using the EOQ model. If demand remains the same, what is the impact on the number of orders made during the year?
a. increase
b. no change
c. decrease
d. cannot be determined