Question: 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

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%.

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