This is Accounting 2

label Accounting
account_circle Unassigned
schedule 1 Day
account_balance_wallet $5

A company is considering the purchase of a new machine for $27,200. Management predicts that the machine can produce sales of $10,400 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $5,300 per year plus depreciation of $2,800 per year. The company's tax rate is 40%. What is the approximate accounting rate of return for the machine?

Aug 24th, 2015

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

The accounting income is given by (10400 - (5300+2800)) = 2300

Yearly, that averages out to 2300/10 = 230

Considering tax: 230 * 60% =  138

Divide it by initial investment for ARR: 138/27200 = 0.51%

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

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