Major Emig Owns a Pet Store

question 140

Essay

Major Emig owns a pet store.Major wants to convert a storeroom into a space that can be leased to a pet groomer.Major believes that pet owners coming to the store to have their pets groomed will shop while they wait and generate additional revenues for the store.The conversion would cost $180,000 and will have a useful life of 20 years.The space will be leased to a local pet groomer for $36,000 per year.Electricity, water and other utilities are expected to be $7,200 per year.
Required:
a.Calculate the annual operating income generated by the conversion project.
b.Calculate the accounting rate of return for the conversion project.
c.If the conversion project is successful in generating new business for the pet store, how will the accounting rate of return be affected?

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Definitions:

Pilgrims

Early settlers of the Plymouth Colony in present-day Massachusetts, known for their 1620 voyage aboard the Mayflower seeking religious freedom.

Cape Cod

A geographic cape extending into the Atlantic Ocean from the southeastern corner of mainland Massachusetts, in the northeastern United States.

Vagrancy

A condition of homelessness and joblessness, often criminalized, where individuals wander from place to place without a permanent home or lawful employment.