Janet Manufacturing Ltd.is considering buying an automated machine that costs $500,000.It requires working capital of $50,000.Annual cash savings are anticipated to be $206,000 for five years.The company uses straight-line depreciation.The salvage value at the end of five years is expected to be $20,000.The working capital will be recovered at the end of the machine's life.Required:
Compute the accrual accounting rate of return based on the initial investment.

Question

Quizplus · Accepted Answer

The Answer of Janet Manufacturing Ltd.is considering buying an automated machine that costs $500,000.It requires working capital of $50,000.Annual cash savings are anticipated to be $206,000 for five years.The company uses straight-line depreciation.The salvage value at the end of five years is expected to be $20,000.The working capital will be recovered at the end of the machine's life.Required:
Compute the accrual accounting rate of return based on the initial investment.