Thurman munster the owner of adams family rvs is, Ask an Expert

Accounting

Thurman Munster, the owner of Adams Family RVs, is considering the addition of a service center his lot. The building and equipment are estimated to cost $1,200,000, and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. Munsters required rate of return for this project is 12%. Net income related to each year of the investment is as follows.

Revenue $450,000

Less:

Material Cost: $60,000

Labor: 100,000

Depreciation: 120,000

Other: 10,000 290,000

Income before taxes 160,000

Taxes at 40% 64,000

Net Income $96,000

(A) Determine the net present value of the investment in the service center. Should Munster invest in the service center?

(B) Calculate the internal rate of return of the investment to the nearest 0.5%.

(D) Calculate the accounting rate of return.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9955827

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