Question

Carmel Corporation is considering the purchase of a machine costing $37,000 with a 5-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?

Multiple Choice

• $18,500.

• $22,200.

• $7,400.

• $37,000.

• $8,880.
  

  The following relates to a proposed equipment purchase:
  

  Cost	$	153,000
  Salvage value	$	3,000
  Estimated useful life		4	years
  Annual net cash flows	$	50,600
  Depreciation method	Straight-line

  
  Ignoring income taxes, the annual net income amount used to calculate the accounting rate of return is:

  Multiple Choice

• $50,600

• $13,100

• $13,850

• $88,100

• $49,850

Answer 1

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