A company buys a machine for $60,000 that has an expected life of 9 years and no salvage value. The company anticipates a yearly net income of $2,850 after taxes of 30%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return?
A) 9.50%.
B) 6.65%.
C) 4.75%.
D) 2.85%.
E) 42.75%.

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) is calculated by dividing the average annual net income by the initial investment. In this case, the average annual net income is $2,850 / 9 = $316.67. The initial investment is $60,000. Therefore, the ARR is $316.67 / $60,000 = 9.50%.

A Company Buys a Machine for $60,000 That Has an Expected