Mosaic Tile Company is considering an investment in new equipment costing $858,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a residual value of $62,000.The equipment is expected to generate net cash inflows of $1,002,000 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

11ea8873_d555_86a2_bb89_619194d5a86d_TB5026_00 *Average amount invested = (Amount invested + Residual value) / 2
ARR of Equipment = Average annual operating income / Average amount invested
ARR = $41,200 / $460,000 = 8.96% (Rounded)

Mosaic Tile Company Is Considering an Investment in New Equipment