Major Emig owns a pet store. Major wants to convert a storeroom into a space that can be leased to a pet groomer. Major believes that pet owners coming to the store to have their pets groomed will shop while they wait and generate additional revenues for the store. The conversion would cost $180,000 and will have a useful life of 20 years. The space will be leased to a local pet groomer for $36,000 per year. Electricity, water and other utilities are expected to be $7,200 per year.
Required:
| a. | Calculate the annual operating income generated by the conversion project. |
| b. | Calculate the accounting rate of return for the conversion project. |
| c. | If the conversion project is successful in generating new business for the pet store, |
how
will the accounting rate of return be affected?
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