Peng Company is considering an investment expected to generate an average net income after taxes of $

Question:

Peng Company is considering an investment expected to generate an average net income after taxes of $ 1,950 for three years. The investment costs $ 45,000 and has an estimated $ 6,000 salvage value. Compute the accounting rate of return for this investment; assume the company uses straight- line depreciation.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...