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Homework Help Please

I am currently taking Financial Accounting and have a problem that I can almost solve but am unable how to figure out where on figure comes from.We are currently studying how to determine payback period and unadjusted rate of return.

Here is the problem:

Your response

Anthony Savini owns a small auto repair facility. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Savini to offer air conditioning repairs to customers.. The machine would cost $2,700 and has an expected useful life of 3 years with no salvage value. Additional annual cash revenues and cash operating expenses associated with repairing air conditioners are expected to be $1,960 and $300, respectively.

Alternatively, Mr. Savini could purchase for $3,540 the equipment necessary to repair exhaust. That equipment has an expected useful life of 4 years and no salvage value. Additional annual cash revenues and cash operating expenses associated with repairing exhausts are expected to be $2,720 and $1,660, respectively.

Income before taxes earned by the auto repair facility is taxed at an effective rate of 20 percent.

Required

Determine the payback period and unadjusted rate of return (use average investment) for each alternative. Round answers to nearest whole dollar amount. Round payback period and rate of return to 2 decimal places. Amounts in parentheses do not require a negative sign in front of them. Omit the "$" and "%" sign in your response.

Alternative 1 Alternative 2

Revenue $1960 $2720

Operating Expenses (300) (1660)

Depreciation Expense ( 900 ) ( 885 )

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Income Before Tax 760 175

Tax Expense at 20% ( 152 ) ( 35 )

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Net Income 608 140

Add Back Depreciation 900 885

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Cash Flow Per Year $ 1508 $ 1025

Alternative 1 Alternative 2

Payback Period Payback Period

$2700

$3540

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= 1.79 years

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= 3.45 years

$1508

$1025

Unadjusted Rate of Return Unadjusted Rate of Return

$608

$140 (4%)

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= 45.04

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= 7.91

$1350

$1770

I can not figure out where the 1350 and the 1770 come from in the unadjusted rate of return. Any help in findout out how this is the right answer would be appreciated.

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When I sent this question the first time the formatting got messed up so here is the same problem again.

Operating Expenses (300) (1660) Depreciation Expense ( 900 ) ( 885 )

Tax Expense at 20% ( 152 ) ( 35 ) Net Income 608

140 Add Back Depreciation 900 885 Cash Flow Per Year $ 1508 $ 1025

Payback Period Payback Period $2700 / $1508 = 1.79 years 3540 / 1025 = 3.45 years

Reply to
jailed

The first time i sent this question the formating got messed up. This is the same question hopefully with better format.

Anthony Savini owns a small automotive repart center. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Savini to offer airconditioning repair to customers. The machine would cost $2,700 and has an expected useful life of 3 years with no salvage value. Additional annual cash revenues and cash operating expenses associated with repairing aircondition machines are expected to be $1,960 and $300, respectively.

Alternatively, Mr. Savini could purchase for $3,540 the equipment necessary to repair exhausts. That equipment has an expected useful life of 4 years and no salvage value. Additional annual cash revenues and cash operating expenses associated with repairing exhaust are expected to be $2,720 and $1,660, respectively.

Income before taxes earned by the repair center is taxed at an effective rate of 20 percent.

Required Determine the payback period and unadjusted rate of return (use average investment) for each alternative. Round answers to nearest whole dollar amount. Round payback period and rate of return to 2 decimal places. Amounts in parentheses do not require a negative sign in front of them. Omit the "$" and "%" sign in your response.

Alternative 1 Alternative 2 Revenue $1960 $2720 Operating Expenses (300 ) (1660) Depreciation Expense ( 900 ) ( 885 ) ________________________________________ Income Before Tax 760 175 Tax Expense at 20% ( 152 ) ( 35 ) ______________________________________ Net Income 608 140 Add Back Depreciation 900 885 ________________________________________ Cash Flow Per Year $ 1508 $ 1025

Alternative 1 Alternative 2 Payback Period Payback Period

$2700 $3540 ______________=1.79 years. ______ = 3.45 years $1508 $1025

Unadjusted Rate of Return Unadjusted Rate of Return

$608 $140 __________E.04% __________ =7.91 % $1350 $1770

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jailed

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