Question

A company is planning to purchase a machine that will cost $29,400 with a six-year life and no salvage value. The company uses straight-line depreciation. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?
Sales............................................................................ $117000
Cost:
Manufacturing...................................... $52,000
Depreciation on machine...................... 4900
Selling and administrative expenses..... 39,000 96,800
Income before Tax....................................................... 20,200
Income Tax(40%)......................................................... 8080
Net Income..................................................................$12,120

a. 6.00 years
b. 4.85 years.
c. 2.43 years.
d. 173 years.

Answer 1

It might be a:6.00 years