Reinhold Corporation has a $3,500,000 investment in equipment and is subject to a 20% income tax rate. Cash inflows are expected to average $320,000 before tax over the next few years; in contrast, average income before tax is anticipated to be $220,000. The company's accounting rate of return is:

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average annual income before tax by the investment. In this case, the average annual income before tax is $220,000 and the investment is $3,500,000. Therefore, the accounting rate of return is $220,000 / $3,500,000 = 6.3%.

Reinhold Corporation Has a $3,500,000 Investment in Equipment and Is