Asked by Ysobelle Eustaquio on Apr 27, 2024
Verified
A company purchases a machine for $800,000.The machine has an expected life of 9 years and no salvage value.The company anticipates a yearly after-tax net income of $60,000 to be received uniformly throughout each year.What is the accounting rate of return?
Straight-Line Depreciation
A method of allocating an asset's cost evenly throughout its useful life.
Salvage Value
The estimated residual value of an asset after its useful life is over and it has been fully depreciated.
Accounting Rate of Return
A financial metric used to assess the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.
- Acquire knowledge on the principle and calculation methods of the accounting rate of return for investment appraisal.
- Distinguish between cash flows and accounting profit in investment appraisal.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
Accounting rate of return = $60,000/[($800,000 +$0)/2] = 15%
Learning Objectives
- Acquire knowledge on the principle and calculation methods of the accounting rate of return for investment appraisal.
- Distinguish between cash flows and accounting profit in investment appraisal.