Exercise 9-18 Payton and Finley Davis run a real estate brokerage firm. They hav

Question

Exercise 9-18 Payton and Finley Davis run a real estate brokerage firm. They have just moved into a new building and want to add some outdoor digital signage to advertise the firm's services. The sign they are considering has two display areas that can display two different images at the same time and costs $103,800. It is expected to have a useful life of 4 years. In an effort to recoup the cost of the sign, Payton and Finley will rent one display panel to other tenants in the building for $33,400 a year. Electricity to power the sign is expected to be $855 per year Calculate the annual net operating income generated by the new sign. Annual net operating income $ LINK TO TEXT VIDEO: SIMILAR EXERCISE Calculate the accounting rte of return of the new sign. (Round answer to 2 decimal places, eg, 52.75%.) Accounting rate of return LINK TO TEXT LINK TO VIDEO VIDEO: SIMILAR EXERCISE If the sign is successful in generating new business for the firm, how will the accounting rate of return be affected? If the sign is successful, accounting rate of return will Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Solution:

Annual net operatin income = Rental income - Depreciation - electricity cost

= $33,400 - ($103,800/4) - $855 = $6,595

Accounting rate of return on new sign = Average annual income / Average investment

Average investment = (Cost + Salvage Value) /2 = ($103,800 + 0) /2 = $51,900

Accounting rate of return = $6,595 / $51,900 = 12.71%

If the sign in sucessful in generating new business for the firm, accounting rate of return will increase.

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