Average Accounting Return Your fi rm is considering purchasing a machine with the following annual, end-of-year, book investment accounts:

Purchase Date Year 1 Year 2 Year 3 Year 4 Gross investment $16,000 $16,000 $16,000 $16,000 $16,000 Less: Accumulated depreciation 0 4,000 8,000 12,000 16,000 Net investment $16,000 $12,000 $ 8,000 $ 4,000 $ 0 The machine generates, on average, $4,500 per year in additional net income.

a. What is the average accounting return for this machine?

b. What three fl aws are inherent in this decision rule? LO.1