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Newport Corp is considering the purchase of a new piece of equipment. The cost savings...

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Accounting

Newport Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6 year life. There is no salvage value for the equipment. What is the accounting rate of return? Ignore income taxes.

A. 5.56%

B. 16.67%

C. 22.22%

D. 44.44%

Please show your work on the calculations!

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