The following data concerns a proposed equipment purchase:
Cost……….. $144,000
Salvage value ……….. $ 4,000
Estimated useful life ……….. 4 years
Annual net cash flows ………..$ 46,100
Depreciation method ……….. Straight-line
Assuming that net cash flows are received evenly throughout the year,the accounting rate of return is:

Question

Quizplus · Accepted Answer

Annual depreciation expense = ($144,000 - $4,000)/4 = $35,000/yr.; After-tax income = $46,100 - $35,000 = $11,100; Accounting rate of return = $11,100 [($144,000 + $4,000)/2]=15%

The Following Data Concerns a Proposed Equipment Purchase