Hatdog Company contemplates the replacement of an old equipment. The annual cost of operating the old equipment is P500, 000 excluding depreciation, while the estimate for the new equipment is P350, 000. Cost of the new equipment is P400, 000 with a useful life estimate of 5 years and no salvage value. Assume an income tax rate of 30%, and a 10% cost of capital. The book value of the old machine is zero. Required: 1. Accounting rate of return based on original investment.

Required: 2. Accounting rate of return based on Average Investment. round off to two decimal places in percent form or 4 decimal places in decimal form

Answer rating: 100% (QA)

To calculate the accounting rate of return ARR based on the original investment and the average inve... View the full answer