A company is planning to purchase a machine that will cost $24,600, have a six-y

Question

A company is planning to purchase a machine that will cost $24,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

A company is planning to purchase a machine that will cost $24,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

Explanation / Answer

Calculate accounting rate of return :

Accounting rate of return = Net income*100/initial investment

= 3770*100/24600

Accounting rate of return = 15.33%

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