A new manufacturing machine is expected to cost $278,000,have an eight-year life,and a $30,000 salvage value.The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation.Compute the accounting rate of return for the investment.
A)22.7%.
B)23.4%.
C)46.9%.
D)12.2%.
E)24.5%.

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) is calculated as the average annual profit divided by the initial investment cost. The annual depreciation is ($278,000 - $30,000) / 8 = $31,000. The annual profit is $35,000 + $31,000 = $66,000. ARR = $66,000 / $278,000 = 23.7%.

A New Manufacturing Machine Is Expected to Cost $278,000,have an Eight-Year