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Your firm requires an average accounting return (AAR) of at least 19% on all fixed asset purchases. Currently, you are considering some new equipment costing
Your firm requires an average accounting return (AAR) of at least 19% on all fixed asset purchases. Currently, you are considering some new equipment costing $487,500. This equipment will have a 6-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 project is estimated at $55,000 a year for the first 3 years and $28,000 a year for the following three years. Should you accept this project based on the accounting rate of return? Why or why not?
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