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14 December, 09:07

A company buys a machine for $64,000 that has an expected life of 5 years and no salvage value. the company anticipates a yearly net income of $3,050 after taxes of 38%, with the cash flows to be received evenly throughout each year. what is the accounting rate of return?

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  1. 14 December, 09:30
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    Accounting rate of return = Incremental accounting income / Investment

    Incremental accounting income = Yearly net income = $3,050

    Initial investment = $64,000

    Therefore,

    Accounting rate of return = 3050/64000 = 0.0477 = 4.77%
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