A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the approximate Accounting Rate of Return?

Question

Quizplus · Accepted Answer

The Accounting Rate of Return (ARR) is calculated as (Annual Net Income + Depreciation Expense) / Initial Investment. In this case, ARR = ($2,000 + $1,500) / $21,000 = $3,500 / $21,000 = 0.1667 or 16.67%. The closest answer choice is A) 19%.

A Company Is Considering Purchasing a Machine for $21,000