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kogti [31]
2 years ago
9

A machine costs $600000 and is expected to yield an after tax net income of $23000 each year. Managment predicts this machine ha

s a 10 year service life and a $120000 salvage value, and it uses straight line depreciation. Compute this machine's accounting rate of return
Business
1 answer:
galina1969 [7]2 years ago
7 0

Answer:

6.39%

Explanation:

The cost of the machine is $600,000

The net income is $23,000

The management predict a that it has a 10 years service life

The salvage value is $120,000

The first step is to calculate the average investment

Average investment= (Cost of machine+Salvage value)/2

= $600,000+$120,000/2

= $720,000/2

= $360,000

Therefore, the accounting rate of return can be calculated as follows

= Annual net income/Average investment

= $23,000/$360,000

= 0.0639×100

= 6.39%

Hence the accounting rate of return is 6.39%

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An Amazon seller is deciding which of their products to invest in for the next quarter to maximize their profits. They have each
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