Find accounting rate of return. Kingbird is considering introducing a new fad toy, Topico....
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Accounting
Find accounting rate of return.
Kingbird is considering introducing a new fad toy, Topico. The new product is expected to generate annual revenue of $525,000, with direct materials cost of $180,000, direct labour $165,000, and overhead cost of $103,000. In order to produce Topico, Kingbird will need to purchase new equipment costing $301,000. The equipment will be used for 5 years, as Kingbird expects that interest in the toy will be stopped by then. The equipment will have no residual value after 5 years. To insure a smooth operation, Kingbird expects that the project will increase working capital by $8,000 at the beginning, which will be recovered at the end of the five years. In addition, it will cost Kingbird $8,000 to remove the equipment and clean up the facility. Kingbird's policy is to accept investment projects that have a 3 -year payback period. Kingbird's required rate of return is 6%
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Find accounting rate of return.