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ACG 3024 Final Exam Graded A+
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ACG 3024 Final Exam Graded A+
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ACG 3024 Final Exam Graded A+Account Rate of Return (ARR) - ANS-uses the Average Accounting Net Income and
Average Investment to determine a rate of return; average net income/average book
value; disadvantage is that is uses book rather than market values
ARR = Average Accounting Profit/ Average Investment
Example: Example 1: An initial investment of $130,000 is expected to generate annual
cash inflow of $32,000 for 6 years. Depreciation is allowed on the straight line basis. It is
estimated that the project will generate scrap value of $10,500 at end of the 6th year.
Calculate its accounting rate of return assuming that there are no other expenses on the
project.
Solution
Annual Depreciation = (Initial Investment − Scrap Value) ÷ Useful Life in Years
Annual Depreciation = ($130,000 − $10,500) ÷ 6 ≈ $19,917
Average Accounting Income = $32,000 − $19,917 = $12,083
Accounting Rate of Return = $12,083 ÷ $130,000 ≈ 9.3%
Annuity - ANS-Is a series of equal cash amounts occurring at equal time intervals. The
identical cash amounts are sometimes referred to as payments, receipts, or rent.
Budgeting process - ANS-The process for allocating financial resources and measuring
expected quantitative and qualitative outcomes of a firm.
Capital Budgeting - ANS-Is a process used by companies for evaluating and ranking
potential expenditures or investments that are significant in amount.
The large expenditures could include the purchase of new equipment, rebuilding
existing equipment, purchasing delivery vehicles, constructing additions to buildings,
etc.
Cash Collections - ANS--amount of expected cash
-usually a % of expected cash, then a % of precious month credit cash
-use "collection pattern" which tells these %'s
Forumla: For example, quarter 1 revenue is 563, quarter 1 unearned revenue is 577,
and previous quarter's unearned revenue was 632.
To compute cash collections (bookings) I have to do the following:
563 + 577 - 632 = 508
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