A company buys a machine for $64,000 that has an expected life of 5 years and no salvage value. the company anticipates a yearly net income of $3,050 after taxes of 38%, with the cash flows to be received evenly throughout each year. what is the accounting rate of return?

Question

Erica Higgins

Business

29 October, 06:04

A company buys a machine for $64,000 that has an expected life of 5 years and no salvage value. the company anticipates a yearly net income of $3,050 after taxes of 38%, with the cash flows to be received evenly throughout each year. what is the accounting rate of return?

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Johnny Wilkerson · Answer 1

Accounting rate of return = Incremental accounting income / Investment

Incremental accounting income = Yearly net income = $3,050

Initial investment = $64,000

Therefore,

Accounting rate of return = 3050/64000 = 0.0477 = 4.77%