Marcus & Tyler sells frozen custard and sandwiches. It is considering a new site that will require
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Question:
Marcus & Tyler sells frozen custard and sandwiches. It is considering a new site that will require a $2 million investment for land acquisition and construction costs. The following operating results are expected:
Sales Revenue | $ 980,000 | |
Less operating expenses: | ||
Food & Supplies | $ 320,000 | |
Wages & Salaries | 180,000 | |
Insurance | 40,000 | |
Utilities | 10,000 | |
Depreciation | 70,000 | 620,000 |
Operating income | $ 360,000 |
Disregard income taxes.
Required:
- If management requires a payback period of four years or less, should the new site be opened? Why?
- Compute the accounting rate of return on the initial investment.
- What significant limitation of payback and the accounting rate of return is overcome by the net-present-value method?
Related Book For
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134475585
16th edition
Authors: Srikant M. Datar, Madhav V. Rajan
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