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23 July, 23:56

An equipment costing $60,000 is being evaluated for a production process at Don Jones Co. The expected benefits per year is $4,500 and estimated salvage value is $20,000. Determine the rate of return the company can get in this equipment proposal. Equipment life

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  1. 24 July, 00:10
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    Rate of return = 11.25%

    Explanation:

    The accounting rate of return is the average annual income expressed as a percentage of the average investment.

    The simple rate of return can be calculated using the two formula below:

    Accounting rate of return

    = Annual operating income/Average investment * 100

    Average investment = (Initial cost + scrap value) / 2

    Average annual income = Total income over investment period / Number of years

    Average investment = (60,000 + 20,000) / 2 = $40,000

    Average annual income is already given as = 4,500

    Rate of return = 4500/40,0000 * 100 = 50%

    Rate of return = 11.25%
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Home » Business » An equipment costing $60,000 is being evaluated for a production process at Don Jones Co. The expected benefits per year is $4,500 and estimated salvage value is $20,000. Determine the rate of return the company can get in this equipment proposal.
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