Question

Walden Industries is considering investing in productionminusmanagement software that costs $ 610 comma 000​, has $ 64 comma 000 residual​ value, and leads to cost savings of $ 1 comma 560 comma 000 per year over its fiveminusyear life. Calculate the average amount invested in the asset that should be used for calculating the accounting rate of return.

Answer 1

Average investment will be $625000

Step-by-step explanation:

We have given cost = $610000

And residual value = $640000

We have to calculate the average investment

We know that average investment is given by

Average investment
`=(cost+residual\ value)/(2)=(610000+640000)/(2)=$625000`

So the average investment will be $625000 which is used for calculating the accounting rate of return