Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 14

For the following questions, circle the best response.

Use the following data for Question.

Antonio, Inc., has invested in new production equipment at a cost of $24,000. The equipment has an estimated useful life of eight years. The estimated annual sales and operating expense related to the equipment are as follows:

Annual sales	$44,000
Labor costs	(36,000)
Depreciation of equipment	(3,000)
Operating income	$ 5,000
Income taxes (40%)	(2,000)
Net income	$ 3,000

The accounting rate of return is approximately

a. 12.5%.

b. 20.8%.

c. 25.0%.

d. 33.3%.