This is Accounting 2

Accounting
Tutor: None Selected Time limit: 1 Day

A company buys a machine for $72,000 that has an expected life of nine years and no salvage value. The company anticipates a yearly net income of $5,850 after taxes of 30%, with the cash flows to be received evenly throughout of each year. What is the accounting rate of return?

 
Aug 24th, 2015

Hi there! Thank you for the opportunity to help you with your question!

The Annual depreciation is given by (initial value - salvage value)/useful years. In this case: (72000- 0)/9 = 8,000

Now the yearly income (pre-tax) is given by 5850/(1-tax rate) = 5850/0.7 = 8357.14

Then we subtract depreciation from this, 8357.14-8000 = 357.14

We take the post tax value 357.14*0.7 = 250.00

 And divide it by initial investment 250/72,000 = 0.35%

Please let me know if you need any clarification. Always glad to help!
Aug 24th, 2015

Did you know? You can earn $20 for every friend you invite to Studypool!
Click here to
Refer a Friend
...
Aug 24th, 2015
...
Aug 24th, 2015
Dec 5th, 2016
check_circle
Mark as Final Answer
check_circle
Unmark as Final Answer
check_circle
Final Answer

Secure Information

Content will be erased after question is completed.

check_circle
Final Answer