Question

A company is planning to purchase a machine that will cost $31,200 with a six-year life and no salvage value. The company uses straight-line depreciation. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine

Answer 1

44.87%

Step-by-step explanation:

Note: Missing word have been attached as picture below

Average Investment = (Initial Investment + Scrap Value) / 2

Average Investment = [$31,200 + $0] / 2

Average Investment = $31,200/2

Average Investment = $15,600

Accounting Rate of Return = Net Income/Average Investment*100

Accounting Rate of Return = $7,000/$15,600 * 100

Accounting Rate of Return = 0.44871795 * 100

Accounting Rate of Return = 44.87%