FREE Trial

Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts. The machine

Question:

Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts.


PURCHASE YEAR 1 YEAR 2 DATE YEAR 3 YEAR 4 Gross investment Less: Accumulated depreciation Net investment $57,000 28,500


The machine generates, on average, $5,800 per year in additional net income.
a. What is the average accounting return for this machine?
b. What three flaws are inherent in this decision rule?

Transcribed Image Text:

PURCHASE YEAR 1 YEAR 2 DATE YEAR 3 YEAR 4 Gross investment Less: Accumulated depreciation Net investment $57,000 28,500 $57,000 14,250 $42,750 $57,000 $57,000 $57,000 57,000 42,750 $14,250 $57,000 $28,500

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 55% (9 reviews)

a The average accounting return is the average project earnings after taxes divided by the average b...View the full answer


answer-question-section
Answered By
tutor-profile-image
Abel Chumba
I Studied B.Tch and i have 3.8 yaers of experience in IT field and some tutore support training class.
0.00 0 Reviews 10+ Question Solved
Related Book For  book-img-for-question
Corporate Finance Core Principles and Applications

Corporate Finance Core Principles and Applications

ISBN: 978-1259289903

5th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

See More Books
Question Posted:
See More Questions

Related Video

Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

Students also viewed these Business questions

Education Finance Equality And Equity 1st Edition - ISBN: 3319903888 - Free Book