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INFORMATION Leo Limited intends purchasing a new machine and has a choice between two machines viz. Machine A and Machine B. The following forecasts were

INFORMATION Leo Limited intends purchasing a new machine and has a choice between two machines viz. Machine A and Machine B. The following forecasts were made pertaining to these two machines:

Machine A Machine B
Initial Cost 400 000 400 000
Expected Useful Life 5 years 5 years
Scrap value 50 000 0
Annual Depreciation 70 000 80 000
Required Rate of return 12% 12%
Expected annual net profit R R
Year 1 40 000 50 000
Year 2 30 000 50 000
Year 3 60 000 50 000
Year 4 70 000 50 000
Year 5 20 000

50 000

2 Calculate the Accounting Rate of Return (on average investment) of Machine A (expressed to two decimal places).

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