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11 April, 01:42

Palmer Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $136,300. The equipment will have an initial cost of $470,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $8,000, what is the accounting rate of return?

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  1. 11 April, 05:36
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    The correct answer is 29.00%

    Explanation:

    The account rate of return on investment is the percentage of the amount invested that makes up the net return on investment. This is calculated as:

    rate of return = (net income from investment : cost of investment) * 100

    net income from investment = $136,300

    cost of investment = $470,000

    ∴ Rate of return = (136,300 : 470,000) * 100 = 0.29 = 29%
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