Question
What is the average accounting rate of return (ARR) on a piece of equipment that will cost $1,032,000 and that will result in pretax cost
What is the average accounting rate of return (ARR) on a piece of equipment that will cost $1,032,000 and that will result in pretax cost savings of $327,000 for the first three years and then $241,000 for the following three years? Assume that the machinery will be depreciated to a salvage value of 0 over six years using the straight-line method and the companys tax rate is 32 percent. (Round final answer to 1 decimal place, e.g., 527.5.)
Average accounting rate of return ______ %.
If the acceptance decision is based on the project exceeding an ARR of 20 percent, should this machinery be purchased?
The machinery should/should not be purchased.
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