Kahlen Upholstery Is Considering Entering a New Line of Operations

question 33

Multiple Choice

Kahlen Upholstery is considering entering a new line of operations. Starting the business will require an initial investment in equipment of $400,000 with a salvage value of $40,000. It is expected that the new business will increase net income by $80,000 per year for five years. The equipment will be depreciated over a five-year period using straight-line depreciation with no residual value. How much is the accounting rate of return of the new business?

• A) 20.0%
• B) 40.0%
• C) 36.4%
• D) 111.1%

---

Definitions:

Earn Less Profit

A scenario where a business or individual generates a lower amount of financial gain from operations or investments.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider in different markets or to different customers.

Earn More Profit

Refers to the increase in net revenue a company achieves through strategies such as cost reduction, price adjustment, or market expansion.

Elastic Demand

A condition in which the percentage change in quantity demanded of a product is greater than the percentage change in its price, indicating high sensitivity to price changes.