You want to get approval for a capital expense to bring the copy service back in house. You estimate that it will bring in a net cash flow of $$40,000$ over the next $5$ years. An initial outlay of $$24,000$ cash will be needed to for two networked, dedicated computers, and a new copy machine to support the Release of Information Staff you already have.

$1.$ Use straight$-$line deprecation in calculating the average net income and enter the information in table $6-31.$ The accounting rate of return needs to be at least $10\%$ for the project to be accepted.

$6-31$ Accounting Rate of Return

Accounting Rate of Return

Net cash flow per year Cash flow$/$number of years $40,000/5=8,000$

Depreciation Cost$/$number of years

Average net income Net cash flow per year less depreciation

Investment Cost of project

Accounting rate of return on project Average net income$/$investment

$2.$ Will the accounting rate of return for the capital expense be acceptable?