Use the information below to answer the following question(s).
Saturn Ltd. wants to automate one of its production processes. The new equipment will cost $180,000. In addition, Saturn will incur installation and testing costs of $5,000 and $8,500 respectively. The expected life of the equipment is 8 years and the salvage value of the equipment is estimated at $18,000. The annual cash savings are estimated at $32,000. The company uses straight-line depreciation and has a required rate of return of 14%. Ignore income taxes.
-What is the accrual accounting rate of return for the investment Saturn Ltd. is considering?

Question

Quizplus · Accepted Answer

Annual depreciation is ($193,500 - $18,000)/8 years = $21,937.50
AARR = ($32,000 - $21,937.50)/$193,500 = 5.2%
C)

Use the Information Below to Answer the Following Question(s)