Los Gatos Shop Is Considering the Purchase of a Used

question 55

Multiple Choice

Los Gatos Shop is considering the purchase of a used wide-format printer costing $9,600. The wide-format printer would generate a net cash inflow of $4,000 per year for three years. At the end of three years, the printer would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation with no mid-year convention. What is the accounting rate of return on the original investment in the press to the nearest percent, assuming no taxes are paid?

• A)8.33%
• B)41.67%
• C)75.00%
• D)10.00%

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Definitions:

Currency Swap

A financial agreement to exchange currency between two parties at a set rate, often used to hedge currency risk.

Interest Rate Swaps

A financial derivative contract between two parties to exchange interest rate payments on a specified principal amount, typically involving the swap of fixed for variable interest rates.

Variable Rate

A type of interest rate that changes over time, usually in connection with a specific index or benchmark rate.

Index

An index is a statistical measure or indicator that tracks the performance of a basket of assets, stocks, or other financial instruments, often used as a benchmark for investment performance.