Question
Woodcrafters requires an average accounting return (AAR) of at least 17 percent on all fixed asset purchases. Currently, it is considering some new equipment costing
Woodcrafters requires an average accounting return (AAR) of at least 17 percent on all fixed asset purchases. Currently, it is considering some new equipment costing $178,000. This equipment will have a four-year life over which time it will be depreciated on a straight-line basis to a zero book value. The annual net income from this equipment is estimated at $10,100, $10,300, $17,900, and $19,600 for the four years. Should this purchase occur based on the accounting rate of return? Why or why not?
Options:
| a) | No, because the AAR is greater than 17 percent |
| b) | Yes, because the AAR is less than 17 percent |
| c) | Yes, because the AAR is equal to 17 percent |
| d) | No, because the AAR is less than 17 percent |
| e) | Yes, because the AAR is greater than 17 percent |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Multinational Finance
Authors: Kirt Butler
2nd Edition
0324004508, 978-0324004502
