Evaluate capital expenditure proposals using the accounting rate of return method. (Obj. 1). The City Concrete Company is considering the purchase of an additional machine that will cost

$120,000. It has an expected useful life of eight years and will have no salvage value. It is estimated that the machine v^rill result in annual cash savings of $20,000. The company uses the straight-line method in computing depreciation. Its income tax rate is 35 percent.

a. Compute the after-tax accounting rate of return on the beginning investment.

b. Compute the after-tax accounting rate of return on the average investment.

LO.1