Question

Item7 Item 7 Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow: Annual sales $ 88,000 Labor costs (72,000 ) Depreciation of equipment (6,000 ) Operating income $ 10,000 Income taxes (4,000 ) Net income $ 6,000 The estimated accounting rate of return is:

Answer 1

Answer:

12.5%

Explanation:

Accounting rate of return = (Net Income / Equipment cost) * 100

Accounting rate of return = ($6000/$48000)*100

Accounting rate of return = 0.125 * 100

Accounting rate of return = 12.5%

So, the estimated accounting rate of return is 12.5%.