The following relates to a proposed equipment purchase:
-Assuming that net cash flows are received evenly throughout the year,the accounting rate of return is (ignore income taxes):

Question

The following relates to a proposed equipment purchase: 
-Assuming that net cash flows are received evenly throughout the year,the accounting rate of return is (ignore income taxes):

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average annual net income by the initial investment. Using the information given in the problem, the initial investment is $780,000 and the average annual net income is $117,000 ($936,000/8). Therefore, the accounting rate of return is ($117,000/$780,000) x 100 = 15%. Option C is the correct answer.

The Following Relates to a Proposed Equipment Purchase