Ask Question
16 July, 14:14

A company is planning to purchase a machine that will cost $25,200 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine

+5
Answers (1)
  1. 16 July, 14:34
    0
    Net annual average profit

    = Net cashflow - Depreciation

    = $6,000 - $4,200

    = $1,800 per annum

    Depreciation

    = Cost - Residual value

    Estimated useful life

    = $25,200 - 0

    6 years

    = $4,200 per annum

    Accounting rate of return

    = Average profit x 100

    Initial outlay

    = $1,800 x 100

    $25,200

    = 7.14%

    Explanation:

    Accounting rate of return is the ratio of average profit to initial outlay multiplied by 100. Average profit is calculated as net cashflow minus depreciation. Depreciation is calculated as cost minus residual value divided by estimated useful life of the machine.

    Accounting rate of return is average profit divided by initial outlay multiplied by 100.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A company is planning to purchase a machine that will cost $25,200 with a six-year life and no salvage value. The company expects to sell ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers