# Question: Tablerock Corp is interested in reviewing its method of evaluating

Tablerock Corp. is interested in reviewing its method of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $100,000 investment in a machine that had an estimated useful life of five years and an estimated salvage value of $10,000.

The machine was expected to increase net income (and cash flows) before depreciation expense by $28,000 per year. The criteria for approving a new investment are that it have a rate of return of 12% and a payback period of three years or less.

Required:

a. Calculate the accounting rate of return on this investment for the first year.

Assume straight-line depreciation. Based on this analysis, would the investment be made? Explain your answer.

b. Calculate the payback period for this investment. Based on this analysis, would the investment be made? Explain your answer.

c. Calculate the net present value of this investment using a cost of capital of 12%.

Based on this analysis, would the investment be made? Explain your answer.

d. What recommendation would you make to the management of Tablerock Corp. about evaluating capital expenditure proposals? Support your recommendation with the appropriate rationale.

The machine was expected to increase net income (and cash flows) before depreciation expense by $28,000 per year. The criteria for approving a new investment are that it have a rate of return of 12% and a payback period of three years or less.

Required:

a. Calculate the accounting rate of return on this investment for the first year.

Assume straight-line depreciation. Based on this analysis, would the investment be made? Explain your answer.

b. Calculate the payback period for this investment. Based on this analysis, would the investment be made? Explain your answer.

c. Calculate the net present value of this investment using a cost of capital of 12%.

Based on this analysis, would the investment be made? Explain your answer.

d. What recommendation would you make to the management of Tablerock Corp. about evaluating capital expenditure proposals? Support your recommendation with the appropriate rationale.

**View Solution:**## Answer to relevant Questions

Capital budget expenditure analysis: Internet assignment. Annual reports provide significant information about an organization's capital budget and capital budgeting process. Campbell Soup Company provides financial reports ...Direct material variances In addition to the information for Acme Company in Mini-Exercises 15.1 and 15.2, the standard direct material cost per unit consists of 10 pounds of raw material at $0.80 per pound. During August, ...Romano Corporation has three operating divisions and requires a 12% return on all investments. Selected information is presented here:Required:a. Calculate the missing amounts for each division.b. Comment on the relative ...In addition to the information presented in Mini Exercise 14.1, the selling price for each unit is $18. Based on past experience, ABC expects that 30% of a month's sales will be collected in the month of sale, 60% in the ...Cash budget. PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded managementâ€™s most optimistic projections. Sales are made on account and collected as follows: 50% in the ...Post your question