Question
On January 1, 2017, Sanford, Inc. plans to purchase a machine for $68,000 that has an estimated salvage value of $12,000, and an estimated life
On January 1, 2017, Sanford, Inc. plans to purchase a machine for $68,000 that has an estimated salvage value of $12,000, and an estimated life of 4 years. The machine is expected to generate the following cash flows and income over the next 4 years: (2017): Net Income = 12,500 Cash Flow = 26,500 (2018): Net Income = 10,300 Cash Flow = 24,300 (2019): Net Income = 13,000 Cash Flow = 27,000 (2020): Net Income = 2,000 Cash Flow = 16,000. Sanfords required rate of return is 9.5%, and the cost of capital is 7.5%. How much is the accounting rate of return?
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