Payton and Finley Davis run a real estate brokerage fi rm. They have just moved into a new building and want to add some outdoor digital signage to advertise the firm's services. The sign they are considering has two display areas that can display two different images at the same time and costs $140,000. It is expected to have a useful life of five years. In an effort to recoup the cost of the sign, Payton and Finley will rent one display panel to other tenants in the building for $36,000 a year. Electricity to power the sign is expected to be $1,000 per year.

a. Calculate the annual net operating income generated by the new sign.
b. Calculate the accounting rate of return of the new sign.
c. If the sign is successful in generating new business for the fi rm, how will the accounting rate of return be affected?

  • CreatedFebruary 21, 2014
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