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mojhsa [17]
3 years ago
13

Average Accounting Return. Concerning AAR:a. Describe how the average accounting return is usually calculated and describe the i

nformation this measure provides about a sequence of cash flows. What is the AAR criterion decision rule?b. What are the problems associated with using the AAR as a means of evaluating a project’s cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?
Business
1 answer:
evablogger [386]3 years ago
8 0

Answer:

a. Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the AAR criterion decision rule?

Average accounting return = average net income / average investment

The problem with AAR is that net cash flows are not equal to net income since depreciation expense and changes in net working capital are not accounted for by AAR.

The criterion decision rule is that projects with an AAR above a certain measure.

b. What are the problems associated with using the AAR as a means of evaluating a project’s cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?

it doesn't consider net cash flows, nor time value of money. Personally, accounting is an extremely important tool but it only reflects a partial perspective of a business. E.g. a business might have a huge net income but if it doesn't have enough cash to function, it will go bankrupt. In finance, cash is king.

Personally, my biggest problem with AAR is that it doesn't consider net cash flows. I've been on situations where the company I worked for was apparently doing great, but our accounts receivables were huge and we couldn't collect money fast enough. My job was basically go to different banks and convince them of loaning us cash. The worst part was that even without being able to collect cash, we still had to pay taxes and that was another huge problem.

I believe that AAR is still used because of its simplicity. Also, taxes are paid based on accounting profits and many firms base they compensation plans on them.

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Marina CMI [18]

Answer:

B

Explanation:

4 0
3 years ago
How did Apple become successful?
UNO [17]

Answer:1 reason Apple has been so successful can be traced to Steve Jobs. When Apple first went public in 1980, it was worth about $100 million under the leadership of Jobs, who left Apple in 1985. ... When he rejoined in 1997, he faced the task of restructuring an organization that was on the brink of bankruptcy.

Explanation:

3 0
2 years ago
Company J must choose between two alternate business expenditures. Expenditure 1 would require a $80,000 cash outlay and Expendi
Tanya [424]

Answer:

A. 25%

B. 50%

C. 48000 after tax cash flow

Explanation:

a. lets assume marginal tax rate is X%

After tax cash flow of 80000 should equal to 60000$

$80000 - [$80000*X%] = 60000$

80000*X% = 80000-60000

80000*X% =20000

X = 20000/80000

= 25%

b.

$80000 - [$80000*50%*x%] = 60000$

40000*x%=20000

x%=50%

c.

$80000- [$80000*x] = 60000 - [60000*50%*x]

80000-60000 = [80000*x] - [30000*x]

20000 = 50000x

x=40%

check

80000-40% =48000 after tax cash flow

60000*50%

=60000- [60000*50%*40%]

=48000 after tax cash flow

6 0
2 years ago
Crigui Music produces 60000 CDs on which to record music. The CDs have the following costs: Direct Materials $13000 Direct Labor
gizmo_the_mogwai [7]

Answer:

$35,000 is the maximum amount that Crigui should pay

Explanation:

Total cost if manufactured internally;

Direct materials $13,000

Direct labor 15,000

Variable overhead 3,000

Fixed overhead 7,000

————

Total cost $38,000

Therefore, $38,000 - $3,000 (unavoidable cost) = $35,000

7 0
2 years ago
How much would you have to invest today in the bank at an interest rate of 10% to have an annuity of $5600 per year for 7 years,
Shtirlitz [24]

Answer:

PV = $27,263.15

It will be needed to deposit the lump sum of $27,263.15

Explanation:

The question is asking for how much will you need to deposit in a lump sum  today to withdraw for seven years the sum of $5,600 with an interest rate of 10%

In other words it is asking us for the preset value of an annuity of $5,600 with interest of 10%

Using the present value of an annuity formula of $1 we can solve for the present value of that annuity, which is the amount needed to generate this annuity

C * \frac{1-(1+r)^{-time} }{rate}= PV\\

We post our knows value and solve it:

5,600 * \frac{1-(1+0.10)^{-7} }{0.10}= PV\\

PV = $27,263.15

8 0
3 years ago
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