Bartlett Car Wash Co. is considering the purchase of a new facility. It would al
ID: 2759590 • Letter: B
Question
Bartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $103,731 per year. Other information about this proposed project follows:
Calculate and the accounting rate of return for Bartlett. (Round your answer to 2 decimal places.)
Accounting Rate of Return: __________%
Payback period:________years
On January 1, 2013, you deposited $6,700 in a savings account. The account will earn 10 percent annual compound interest, which will be added to the fund balance at the end of each year.
What will be the balance in the savings account at the end of 8 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.)
Balance in the Savings Account:__________
What is the total interest for the 8 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.)
2013 Interest Revenue:________
2014 Interest Revenue:________
Initial investment $ 475,830 Useful life 9 years Salvage value $ 54,000Explanation / Answer
1. Accounting Rate of Return = Net Income / Investment * 100% = 103731 / 475830 * 100% = 21.80% 2. Payback Period = Initial Investment / Cashflow per year Cashflow per year = Net Income + Depreciation for that year Depreciation = (475830 - 54000) / 9 = $46870 Hence, Cashflow per year = 103731 + 46870 = $150,601 Payback Period = 475830 / 150601 = 3.16 years 3. Future Value of Savings Account = Initial Investment * (1+rate)^time = 6700 * 1.10^8 = $14362.05 4. Total Interest for 8 years = Future Value - Initial Investment = 14362.05 - 6700 = $7662.05 5. Interest Earned in 2013 = Initial Investment * (1+rate)^time - $6700 = 6700 * 1.10^1 - 6700 = $670 6. Interest Earned in 2014 = Initial Investment * (1+rate)^time - $6700 - Interest in 2013 = 6700 * 1.10^2 - 6700 - 670 = $737
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