The Jones Company bought a new specialty machine that cost $120,000 with a 6-year life with no residual value. The company plans to generate annual cash inflows of $32,000 each year for 6 years. Calculate the accounting rate of return.

Question

Quizplus · Accepted Answer

($120,000 - 0)/6 years = $20,000 annual depreciation expense
$32,000 - $20,000/$120,000 = $12,000/$120,000 = 10.00%

The Jones Company Bought a New Specialty Machine That Cost