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Q1) Accounting rate of I'9turn, payback, and NPV Busy Beaver Corp. is interested in reviewing its method of estimating capital expenditure proposals using accounting rate of return method!. Recent proposal involved $50,{)(H) investment in macramé that had estimated useful life of five years and estimated salvage value of $10,000. Machine was expected to increase net income (and cash now) before depreciation expense by $15, 000 per year. Criteria for approving new investment are that it has a rate of return of 16% and payback period of three years or less.

Required:

a) What suggestion would you make to, management of Busy Beaver Corp. about estimating capital expenditure proposals? Support your recommendation with suitable rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M919509

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