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Smith & Cramer, Computer Repair, Is Considering an Investment in Computer

question 109

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Smith & Cramer, Computer Repair, is considering an investment in computer and network equipment costing $240,000. This equipment would allow them to offer new programming services to clients. The equipment will be depreciated on the straight-line basis over an eight-year period with an estimated residual value of $50,000. Using the accounting rate of return model, what is the minimum average annual operating income that must be generated from this investment in order to achieve an 11% accounting rate of return?

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Definitions:

Conveyance

The act of transferring the title, rights, or interest in a property from one party to another.

Licence

A grant of permission to do something that, without such permission, would be illegal, a trespass, or a tort.

Easement

A right to use the property of another, usually for a particular purpose.

Impossible Living

A term not generally recognized in standard discourse; appears to refer to conditions under which normal life or habitation is extremely difficult.

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