Wood Furniture Ltd, a furniture producer, is looking to invest in a new machine which will enable them to expand their product range. The initial cost of the machine is £300,000 and at the end of its projected 10 years, life will have a scrap value of £20,000. The company predicts that the total profits for the period related to the additional business generated will be £220,000 after allowing for depreciation of £ 280,000 for the machine.

Calculate the Average Accounting Return and advise whether they should invest if their cost of capital is 8%.

Answer rating: 100% (QA)

The Average Accounting Return AAR formula is AAR Average Net Income Average Book Value ... View the full answer