Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts.
| Purchase Date | Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||||
| Gross investment | $ | 69,000 | $ | 69,000 | $ | 69,000 | $ | 69,000 | $ | 69,000 | |||||||||
| Less: Accumulated depreciation | 0 | 17,250 | 34,500 | 51,750 | 69,000 | ||||||||||||||
| Net investment | $ | 69,000 | $ | 51,750 | $ | 34,500 | $ | 17,250 | $ | 0 | |||||||||
The machine generates, on average, $5,700 per year in additional
net income.
What is the average accounting return for this machine? (Do
not round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
AAR
%
Average accounting return = Average net income /Average investment
= 5700 / 34500
= .1652 or 16.52%
**Average investment = [Beginning book value + ending book value]/2
= [69000+0]/2
= 34500
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