Prescott Corporation is considering an investment in new equipment costing $918,000.The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a residual value of $98,000.The equipment is expected to generate net cash inflows of $152,000 for each of the first five years and $116,000 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

11ea8873_d555_adb3_bb89_cb342836ae03_TB5026_00 *Average amount invested = (Amount invested + Residual value) / 2
ARR of Equipment = Average annual operating income / Average amount invested
ARR = $52,000 / $508,000 = 10.24% (Rounded)

Prescott Corporation Is Considering an Investment in New Equipment Costing