Question

A company buys a machine for $64,000 that has an expected life of 5 years and no salvage value. the company anticipates a yearly net income of $3,050 after taxes of 38%, with the cash flows to be received evenly throughout each year. what is the accounting rate of return?

Answer 1

Accounting rate of return = Incremental accounting income / Investment

Incremental accounting income = Yearly net income = $3,050
Initial investment = $64,000

Therefore,
Accounting rate of return = 3050/64000 = 0.0477 = 4.77%