Dartis Company is considering investing in a specialized equipment costing $670,
ID: 2486386 • Letter: D
Question
Dartis Company is considering investing in a specialized equipment costing $670,000. The equipment has a useful life of 5 years and a residual value of $67,000. Depreciation is calculated using the straightline method. The expected net cash inflows from the investment are given below.
Year 1
$208,000
2
156,000
3
167,000
4
104,000
5
135,000
$770,000
What is the accounting rate of return on the investment?
A. 9.06%
B. 11.08%
C. 9.97%
D. 4.53%
Year 1
$208,000
2
156,000
3
167,000
4
104,000
5
135,000
$770,000
Explanation / Answer
the accounting rate of return on the investment =Average annual accounting profit / Initial investment=770,000/5/670,000=22.98%
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