A new manufacturing machine is expected to cost $286,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation. Compute the accounting rate of return for the investment.

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Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average annual after-tax income by the initial investment. In this case, the average annual after-tax income is $35,000 and the initial investment is $286,000. Therefore, the accounting rate of return is $35,000/$286,000 = 12.2%.

A New Manufacturing Machine Is Expected to Cost $286,000, Have