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Accounting

Problem:

A newspaper is considering buying locked vending machines to replace open newspaper racks in the downtown area. The vending machines cost $45 each. It is expected that the annual revenue from selling the same quantity of newspapers will increase $12 per vending machine. The useful life of the vending machine is unknown.

Required:

Question 1: To determine the sensitivity of rate of return to useful life, prepare a graph for rate of return versus useful life for lives up to 8 years.

Question 2: If the newspaper requires a 12% rate of return, what minimum useful life must it obtain from the vending machines?

Question 3: What would be the rate of return if the vending machines were to last indefinitely?

Note: Show supporting computations in good form.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166851

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