Question

Walden Industries is considering investing in productionminusmanagement software that costs $ 630 comma 000​, has $ 60 comma 000 residual​ value, and leads to cost savings of $ 1 comma 660 comma 000 per year over its fiveminusyear life. Calculate the average amount invested in the asset that should be used for calculating the accounting rate of return.

Answer 1

Answer:

345,000

Explanation:

accounting rate of return:

$\frac{net \:profit}{average \: investment}$

The average investment will be the average between the ending and beginning book value of the investment:

In this case, the acquisition of the software and his salvage value at the end of the useful life.

( 630,000 + 60,000 ) / 2 = 345,000