I am having trouble with this problem. I have included the reference tables that

Question

I am having trouble with this problem. I have included the reference tables that we are required to use. I will also include notes from the book. There may be many ways to figure out the answers but the book requires us to use their methods. One tutor has tried to help me prior but they were unsuccessful. I am using the textbook: Kimmel, Accounting: Tools for Decision Making, 5e. This is a problem from Chapter 24 Planning Capital Investments. It is BE24-9. Please note the text in red.

Question:

Notes:

Reference Tables:

Explanation / Answer

Annual Rate of Return is derived from the formula Expected Annual Net Income/Average Investment Expected Annual Net Income $ $ Sales from extra 6 mufflers per week X 52 weeks 22464 Cost of Mufflers 12792 Labor Cost of Mufflers 3744 Depreciation on Equipment 3947.625 20483.63 Annual Net Income from the investment done 1980.375 Average Investment Value = Cost + Salvage Value/2 Therefore, Average Investment = 19730.5 Thus, the Annual Rate of Return is 10.0%

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