Question

A company buys a machine for $69,000 that has an expected life of 7 years and no salvage value. The company uses straight-line depreciation. The company anticipates a yearly net income of $3,300 after taxes of 38%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return

Answer 1

9.57%

Step-by-step explanation:

Accounting rate of return = Annual after tax net income/Average investment

Accounting rate of return = $3,300 / ($69,000/2)

Accounting rate of return = $3,300 / $34,500

Accounting rate of return = 0.095652174

Accounting rate of return = 9.57%