Nylan Tiles is considering an investment in new equipment costing $850,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a residual value of $54,000.The equipment is expected to generate net cash inflows of $1,000,000 in total during the five-year life.What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.)

Question

Quizplus · Accepted Answer

B) 11ea8870_3656_95bf_bb89_c9d05b5d335a_TB5025_00 *Average amount invested = (Amount invested + Residual value) / 2
ARR of Equipment = Average annual operating income / Average amount invested
ARR = $40,800 / $452,000 = 9.03% (Rounded)

Nylan Tiles Is Considering an Investment in New Equipment Costing