Section IV Please answer the following questions.

a.Carmel Corporation is considering the purchase of a machine costing $36,000 with a 6-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?

$6,000.

$7,000.

$18,000.

$21,000.

$36,000.

b. A company buys a machine for $76,000 that has an expected life of 6 years and no salvage value. The company anticipates a yearly after tax net income of $1,805. What is the accounting rate of return?

2.85%.

4.75%.

6.65%.

9.50%.

42.75%.

c. A company is planning to purchase a machine that will cost $24,000, has a six-year life, and would be depreciated over a three-year period with no salvage value. 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 payback period for this machine?

Sales		$90,000
Costs:
Manufacturing	$52,000
Depreciation on machine	4,000
Selling and administrative expenses	30,000	(86,000)
Income before taxes		$4,000
Income tax (50%)		(2,000)
Net income		$2,000

24 years.

12 years.

6 years.

4 years.

1 year