Question
Your firm 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
Your firm 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 | $ | 69,000 | | | $ | 69,000 | | | $ | 69,000 | | | $ | 69,000 | | | $ | 69,000 | |
| Less: Accumulated depreciation | | 0 | | | | 17,250 | | | | 34,500 | | | | 51,750 | | | | 69,000 | |
| Net investment | $ | 69,000 | | | $ | 51,750 | | | $ | 34,500 | | | $ | 17,250 | | | $ | 0 | |
| | |||||||||||||||||||
The machine generates, on average, $5,700 per year in additional net income.
What is the average accounting return for this machine?
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Corporate Finance Core Principles and Applications
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford
3rd edition
978-0077971304, 77971302, 978-0073530680, 73530689, 978-0071221160, 71221166, 978-0077905200
