A Plant Asset of $180,000 Is Expected to Generate $80,000

question 8

Multiple Choice

A plant asset of $180,000 is expected to generate $80,000 in operating cash savings (excluding depreciation expense) annually for three years.Assume straight-line depreciation is used.The useful life is 3 years.The asset has no expected residual value.Ignore income taxes.The accounting rate of return based on the initial investment is ________.

• A) 11.11%
• B) 16.67%
• C) 33.33%
• D) 44.44%

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, often used in the calculation of net present value.

Terms of Sale

Conditions agreed upon by the buyer and seller regarding the delivery, payment, and other aspects of a transaction for goods or services.

Credit Policy Effects

Refers to the outcomes or changes in business performance and financial health resulting from adjustments to a company's credit terms and conditions offered to customers.

Cost Factor

A variable, condition, or aspect that determines the cost of an operation or activity, often expressed as a multiplier or percentage.