WhiteCare Dry Cleaning has decided they need to open an additional facility. The younger generation would prefer to have their clothes dry cleaned instead of the hassle of doing laundry. The information for the additional facility is as follows:
Instructions
a. Calculate the accounting rate of return (ARR) for the first year of business.
b. Based on your calculations in part a, should WhiteCare move forward with the purchase?
c. In the 2^nd year of business, they are expecting their gross margins to double by the end of the year. What is the ARR for year 2? What is the ARR for the average of years 1 and 2?
d. The company believes the gross margin should equal year 2 for years 3 - 15. Based on these assumptions what will the ARR be over the useful life of the building?
e. Based on your calculations in part d, should WhiteCare make the investment?

Question

WhiteCare Dry Cleaning has decided they need to open an additional facility. The younger generation would prefer to have their clothes dry cleaned instead of the hassle of doing laundry. The information for the additional facility is as follows:

Instructions
a. Calculate the accounting rate of return (ARR) for the first year of business.
b. Based on your calculations in part a, should WhiteCare move forward with the purchase?
c. In the 2^nd year of business, they are expecting their gross margins to double by the end of the year. What is the ARR for year 2? What is the ARR for the average of years 1 and 2?
d. The company believes the gross margin should equal year 2 for years 3 - 15. Based on these assumptions what will the ARR be over the useful life of the building?
e. Based on your calculations in part d, should WhiteCare make the investment?

Quizplus · Accepted Answer

The Answer of WhiteCare Dry Cleaning has decided they need to open an additional facility. The younger generation would prefer to have their clothes dry cleaned instead of the hassle of doing laundry. The information for the additional facility is as follows: Instructions a. Calculate the accounting rate of return (ARR) for the first year of business. b. Based on your calculations in part a, should WhiteCare move forward with the purchase? c. In the 2^nd year of business, they are expecting their gross margins to double by the end of the year. What is the ARR for year 2? What is the ARR for the average of years 1 and 2? d. The company believes the gross margin should equal year 2 for years 3 - 15. Based on these assumptions what will the ARR be over the useful life of the building? e. Based on your calculations in part d, should WhiteCare make the investment?

WhiteCare Dry Cleaning Has Decided They Need to Open an Additional