Exercise 2-9 Accounting rate ofreturn method

- Replacement decision Compute the accounting rate of return for the investment in exercise 2-7. We decided there whether it was useful to replace the old production line with the help of the profit comparison method.

a) Using the accounting rate of return method, prepare calculations to show whether the machine should be replaced. The decision criterion used is 13 % for the return on average capital employed.

b) Explain in general if the investment should regarded as worthwhile under the conditions described.