A company is planning to purchase a machine that will cost $32,400, have a six-y

Question

A company is planning to purchase a machine that will cost $32,400, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

A company is planning to purchase a machine that will cost $32,400, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

Explanation / Answer

Accounting rate of return = Annual net income / Initial investment

= $20,440 / $32,400

= 0.6309 = 63.09%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.