Use the Information Below to Answer the Following Questions Depreciation Has Been Calculated on a Straightline Basis

question 32

Multiple Choice

Use the information below to answer the following questions.
Y3 Ltd is expanding its production of binoculars. The plant is expected to cost $750,000, have a life of 5 years, and a nil residual value. It will be ready for operation on 31 December 2017. The following statement of comprehensive income figures for the new binoculars are forecast: $\begin{array}{llllll}&2018 & 2019 & 2020 & 2021 & 2022 \\&\$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m}\\\text { Sales } & 1.5 & 1.3 & 1.4 & 1.2 & 1.1 \\\text { Costs (including depreciation) } & 1.0 & 1.0 & 1.0 & 1.0 & 1.0 \\\hline \text { Profit before tax } & \underline{0.5} & 0.3 & 0.4 & 0.2 & 0.1\end{array}$ Depreciation has been calculated on a straightline basis. You should assume that all cash flows occur at the end of the year in which they arise. The company's cost of capital is 10%. Ignore taxation.
-Refer to the table above. The accounting rate of return is:

• A)40%.
• B)80%.
• C)50%.
• D)30%.

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Definitions:

Specified Interval

A defined range of values within which a particular parameter or statistic is expected to lie.

Success Probability

The likelihood or chance of an event happening, particularly used in the context of achieving a specific outcome.

Rate

A measure, quantity, or frequency, typically one measured against another quantity or measure, such as speed (distance per unit of time) or interest rate (interest per unit of time or per amount of principle).

Successes Occur

Instances in which an outcome meets the defined criteria for success in an experiment or set of observations.