The following relates to a proposed equipment purchase:
-Ignoring income taxes,the annual net income amount used to calculate the accounting rate of return is:

Question

The following relates to a proposed equipment purchase: 
-Ignoring income taxes,the annual net income amount used to calculate the accounting rate of return is:

Quizplus · Accepted Answer

The annual net income used to calculate the accounting rate of return is $11,100, which is calculated by taking the average annual income of $46,100 and subtracting the annual depreciation expense of $35,000 ($140,000/4 years). Therefore, the accounting rate of return is ($11,100/$175,000) x 100% = 6.34%.

The Following Relates to a Proposed Equipment Purchase