Question

Palmer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $179,850. The equipment will have an initial cost of $545,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $34,000, what is the accounting rate of return

Answer 1

So, accounting rate of return = 33 %

Step-by-step explanation:

given data

net income after tax = $179,850

initial cost = $545,000

time = 7 year

salvage value = $34,000

we will get here the accounting rate of return

solution

as we know that accounting rate of return is express as

accounting rate of return = Net income ÷ initial investment .................1

put here value and we get

accounting rate of return =
`(179850)/(545000)`

So, accounting rate of return = 33 %