A machine costs $180,000 and will have an eight-year life,a $20,000 salvage value,and straight-line depreciation is used.Management estimates the machine will yield an after-tax net income of $12,500 each year.Compute the accounting rate of return for the investment.
A)12.5%.
B)26.8%.
C)11.8%.
D)10.8%.
E)22.5%.

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average annual after-tax net income by the initial investment. In this case, the average annual after-tax net income is $12,500 and the initial investment is $180,000. Therefore, the accounting rate of return is 12,500 / 180,000 = 12.5%.

A Machine Costs $180,000 and Will Have an Eight-Year Life,a