A company is planning to purchase a machine that will cost $29,400 with a six-year life and no salvage value. The company uses straight-line depreciation. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?
Sales ... $117000
Cost:
Manufacturing ... $52,000
Depreciation on machine ... 4900
Selling and administrative expenses ... 39,000 96,800
Income before Tax ... 20,200
Income Tax (40%) ... 8080
Net Income ... $12,120
a. 6.00 years
b. 4.85 years.
c. 2.43 years.
d. 173 years.
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