Question
Calculation of Accounting Rate of Return: Equipment One costs $400,000 and is expected to yield an after-tax net income of $15,000 each year. Management predicts
Calculation of Accounting Rate of Return: Equipment One costs $400,000 and is expected to yield an after-tax net income of $15,000 each year. Management predicts this machine has a 10-year service life and a $40,000 salvage value, and it uses straight-line depreciation. Part 1. Compute this machine's accounting rate of return for this proposed investment in equipment. You must show your work for credit. (1 point) Part 2. Assume the accounting rate of return for a similar investment in equipment (Equipment Two) for the same company was, say, 5.8%. Which investment (Equipment One or Equipment Two) would the company prefer AND why? (1 point)
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