Question

A company buys a machine for $76,000 that has an expected life of 6 years and no salvage value. the company anticipates a yearly after tax net income of $1,805. what is the accounting rate of return

Answer 1

The accounting rate of return is 2.37%

Step-by-step explanation:

The accounting rate of return can be calculated by dividing the net income with the initial investment.

Thus given initial investment is $76000 and net income is $1805.

So, the accounting rate of return = (Net income / Initial investment) × 100

The accounting rate of return = (1805 / 76000) × 100

The accounting rate of return = 2.37%

Answer 2

To compute the accounting rate of return, you just have to divide the average accounting profit with the average cost of investment. In this problem, the average accounting profit is $1,805 and the average cost of investment is $76,000. Using the formula in computing the accounting rate of return, we can get 2.38% ($1,805 / $76,000).