Question
A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no
A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales $90,000 Costs: Manufacturing $52,000 Depreciation on machine 4,000 Selling and administrative expenses 30,000 (86,000) Income before taxes $4,000 Income tax (50%) (2,000) Net income $2,000 33.3%. 16.7%. 50.0%. 8.3%. 4%.
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