Siesta Manufacturing has asked you to evaluate a capital investment project. The

Question

Siesta Manufacturing has asked you to evaluate a capital investment project. The project will require an initial investment of $54,000. The life of the investment is 6 years with a residual value of $6,000. If the project produces net annual cash inflows of $20,000, what is the accounting rate of return? (Round any intermediary calculations to the nearest dollar and your final answer to two decimal places, XXX%.) If accounting rate of return is used to make the decision and the minimum return is 20% then Siesta would A. 37.04% and invest OB. 22.22% and invest OC. 11.11% and not invest 0 D. 22.22% and not invest

Explanation / Answer

Annual depreciation expense = (54000-6000)/6= $8000 Annual net income = 20000-8000 = $12000 Accounting rate of return = 12000/54000= 22.22% Option B 22.22% and invest is correct

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