A company is considering purchasing a machine for $21,000.The machine will generate an after-tax net income of $2,000 per year.Annual depreciation expense would be $1,500.The machine has no salvage value.What is the accounting rate of return?
A)19%
B)33%
C)17%
D)10%
E)25%

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the annual after-tax net income by the initial investment. In this case, the annual after-tax net income is $2,000 and the initial investment is $21,000. Therefore, the accounting rate of return is $2,000/$21,000 = 0.0952, or 9.52%.

A Company Is Considering Purchasing a Machine for $21,000