Clapton Corporation is considering an investment in new equipment costing $934,000.The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a residual value of $90,000.The equipment is expected to generate net cash flows of $156,000 for each of the first five years and $138,000 for each of the last five years.What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.)

Question

Quizplus · Accepted Answer

D) 11ea8870_3656_bcd0_bb89_85eb232fc6d2_TB5025_00 *Average amount invested = (Amount invested + Residual value) / 2
ARR of Equipment = Average annual operating income / Average amount invested
ARR = $62,600 / $512,000 = 12.23% (Rounded)

Clapton Corporation Is Considering an Investment in New Equipment Costing