Question

A company buys a machine for $79,000 that has an expected life of 4 years and no salvage value. The company uses straight-line depreciation. The company anticipates a yearly net income of $3800 after taxes of 16%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return

Answer 1

Answer:

4.81%

Explanation:

Accounting rate of return is the ratio of annual profit and initial investment made on an asset or project. It is expressed in the times value.

Formula for Accounting rate of return is as follow

Accounting Rate of return = Annual Profit / Initial Investment

Initial Investment = $79,000

Annual Profit = $3,800

placing values in the formula

Accounting rat of return = $3,800 / $79,000

Accounting rat of return = 0.0481

Accounting rat of return = 4.81%