A company is considering the purchase of a new machine for $48,000.Management predicts that the machine can produce sales of $16,000 each year for the next 10 years.Expenses are expected to include direct materials,direct labor,and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year.The company's tax rate is 40%.What is the approximate accounting rate of return for the machine?
A) 13%.
B) 17%
C) 8%
D) 27%
E) 10%

Question

Quizplus · Accepted Answer

$16,000 - $8,000 - $4,000 = $4,000 pretax net income -
(.6)($4,000) = $2,400 (net income)
ARR = $2,400/$24,000 = 10%

A Company Is Considering the Purchase of a New Machine