Wednesday Company produces several products - one of which is light bulbs. Expected sales volume are:

	2021	2022	2023	2024
Sales Units	12,000	21,000	18,000	20,000

The management is evaluating the possibility of installing automated machine. The new cost structure are: total unit variable cost is $24 and depreciation is the only fixed cost.

The initial investment in a new machine of $420,000 at the beginning of 2021. The machine has an expected useful life of 4 years with $50,000 residual value. Straight line depreciation method is used and the machine will be sold at the residual value at the end of the expected useful life.

Assume that all revenues and expenses are on cash basis (except depreciation). Calculate the yearly operating profit before tax in the following format assuming the unit sale price is $32

Calculate the Accounting Rate of Return (ARR) for the machine using initial investment as a base.

Answer rating: 100% (QA)

ARR Average Net profitAverage Investment Calculation of Ann... View the full answer