What is the average accounting rate of return(APR) on a piece of equipment that will cost...

80.2K

Verified Solution

Question

Finance

What is the average accounting rate of return(APR) on a piece ofequipment that will cost $ 1.2 million and that will result inpretax cost savings of $380,000 for the first three years and then$280,000 for the following three years? Assume that the machinerywill be depreciated to a salvage value of 0 over six years usingthe straight line method and the company’s tax rate if 32 percent.If the acceptance decision is based on the project exceeding an APROF 20 percent, should this machinery be purchased?

Answer & Explanation Solved by verified expert

4.0 Ratings (544 Votes)

Average Accounting rate of return Average Net Income Initial Investment in equipment Calculation of Average net Income Year 1 2 3 4 5 6 Pretax cost savings 38000000 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

What is the average accounting rate of return(APR) on a piece ofequipment that will cost $ 1.2 million and that will result inpretax cost savings of $380,000 for the first three years and then$280,000 for the following three years? Assume that the machinerywill be depreciated to a salvage value of 0 over six years usingthe straight line method and the company’s tax rate if 32 percent.If the acceptance decision is based on the project exceeding an APROF 20 percent, should this machinery be purchased?