6.3 The annual, end-of-year, book-investment accounts for the machine whose purchase your firm is considering are shown below.

If your firm purchases this machine, you can expect it to generate, on average, $4,500 per year in additional net income.

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

b. What three flaws are inherent in this decision rule?

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Purchase Year Year Year Year Date 1 2 3 4 Gross investment Less: accumulated depreciation Net investment $16,000 $16,000 $16,000 $16,000 $16,000 0 4,000 8,000 12,000 16,000 $16,000 $12,000 $ 8,000 $ 4,000 $ 0