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Chapter 6 Net Present Value and Other Investment Rules 189 5. Average Accounting Return Your firm is considering purchasing a machine with the fol- lowing

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Chapter 6 Net Present Value and Other Investment Rules 189 5. Average Accounting Return Your firm is considering purchasing a machine with the fol- lowing annual, end-of-year, book investment accounts: Year | Year 3 Year 4 Gross investment Less: Accumulated depreciation Net investment Purchase Date 16,000 0 16,000 16,000 4,000 12,000 Year 2 16,000 8,000 8,000 16,000 16,000 12,000 16,000 4.000 0 T600 3000 2 The machine generates, on averagel 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? IZO AO in a high-tec

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