Siesta Manufacturing has asked you to evaluate a capital investment project.The project will require an initial investment of $88,000.The life of the investment is 7 years with a residual value of $4,000.If the project produces net annual cash inflows of $16,000,what is the accounting rate of return?

Question

Quizplus · Accepted Answer

B)
($88,000 - 4,000)/7 years = $12,000 annual depreciation expense
$16,000 - $12,000/$88,000 = 4.55%

Siesta Manufacturing Has Asked You to Evaluate a Capital Investment