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 $24,000.00 cash will be needed for 2 networked, dedicated computers and a new copy machine to support the ROI staff you already have.

Use straight-line depreciation in calculating the average net income and enter the information in Table6-31. The accounting rate of return needs to be at least 10% for the project to be accepted.

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

Accounting Rate of Return Method of Evaluating Capital Expense

Accounting Rate of Return
Net Cash flow per year	Cash flow/number of years	40, 000/5= 8000
Depreciation	Cost/ number of years
Average net income	Net cash flow per year less Depreciation
Investment	Cost of project
Accounting rate of return for project	Average net income/investment