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Johnson Whole Distributors has invested $120,000. The equipment has an 8-year life and no salvage value....

Johnson Whole Distributors has invested $120,000. The equipment has an 8-year life and no salvage value. Johnson uses straight-line depreciation. The equipment has a payback period of 5 years. The accounting rate of return is closet to..

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Answer #1

Payback period is 5 years so cash flow = 120000/5 = 24000

Depreciation per year = 120000/8 = 15000

Annual net income = 24000-15000 = 9000

Average investment= 120000/2 = 60000

Accounting rate of return = Annual net income*100/Average investment

                                       = 9000*100/60000

Accounting rate of return = 15%

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