Homework Answers
Machine's accounting rate of return is calculated as follows:
Accounting rate of return = Annual after tax net income / Annual average investment * 100
= Annual after tax net income / (Cost + Salvage) /2 * 100
= $30,000 / ($700,000 + $140,000) /2 * 100
= $30,000 / $840,000 / 2 * 100
= $30,000 / $420,000 * 100
= 7.14%
Machine's accounting rate of return is 7.14%
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11-7
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11-7
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