Container Ltd, a manufacturing firm, is considering investing $110,000 in a new mainframe computer. It is estimated that net cash flow per year will be $25,000 and the computer will have a 10-year useful life. The machine will be depreciated on a straight-line basis. The accounting rate of return is:

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated as the average annual net income divided by the average investment. The average annual net income is $25,000, and the average investment is $55,000 ($110,000 / 2). Therefore, the accounting rate of return is $25,000 / $55,000 = 22.72%.

Container Ltd, a Manufacturing Firm, Is Considering Investing $110,000 in a New