PLEASE SHOW SOLUTIONS. DROP DOWN IS INCREASE OR DECREASE Exercise 9-18 Payton an

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PLEASE SHOW SOLUTIONS. DROP DOWN IS INCREASE OR DECREASE

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 $104,800. 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 $33,700 a year. Electricity to power the sign is expected to be $870 per year Calculate the annual net operating income generated by the new sign. Annual net operating income LINK TO TEXI VIDEO: SIMILAR EXERCISE Calculate the accounting rate of return of the new sign. (Round answer to 2 decimal places, e.g. 52.75%.) Accounting rate of return LINK TO TEXT LINK TO VTDEO VIDEO: SIMILAR EX Ir 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 Showw Work

Explanation / Answer

Annual net operating income = $ 6,630

Revenue $33,700 - Electricity $870 - Depreciation ($104,800/4)

Accounting rate of return = 6.33%

$ 6,630 / $ 104,800 = 6.33%. Assume that there is no salvage value of the old equipment.

If the sign is successful, accounting rate of return will Increase.

This is because there will be an increase in revenues, and consequently an increase in net operating income, whereas the denominator of the accounting rate of return will still be the same.

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