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25 August, 05:54

Watson Corporation is considering buying a machine for $25,000. Its estimated useful life is 5 years, with no salvage value. Watson anticipates annual net income after taxes of $1,500 from the new machine. What is the accounting rate of return assuming that Watson uses straight-line depreciation and that income is earned uniformly throughout each year? Multiple Choice 6.0%. 8.0%. 8.5%. 10.0%. 12.0%.

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Answers (1)
  1. 25 August, 06:26
    0
    12%

    Explanation:

    The computation of the accounting rate of return is shown below:

    Accounting rate of return = Average profit : Average investment

    where

    Average profit is

    = $1,500 * 5 years : 5 years

    = $1,500

    And, the average investment is

    = $25,000 : 2

    = $12,500

    So, the accounting rate of return is

    = $1,500 : $12,500

    = 12%

    We simply applied the applied formula
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