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A company is planning to purchase a machine that will cost $27,600 with a six-year life and no salvage value. The company uses straight-line depreciation.
A company is planning to purchase a machine that will cost $27,600 with a six-year life and no salvage value. The company uses straight-line depreciation. 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 | $ | 94,000 | |||||
Costs: | |||||||
Manufacturing | $ | 50,100 | |||||
Depreciation on machine | 4,600 | ||||||
Selling and administrative expenses | 34,000 | (88,700 | ) | ||||
Income before taxes | $ | 5,300 | |||||
Income tax (35%) | (1,855 | ) | |||||
Net income | $ | 3,445 | |||||
Multiple Choice
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4.60%.
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33.33%.
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50.00%.
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24.96%.
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12.48%.
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