A firm purchased a machine that cost $28,000 and is expected to meet the needs of...
A firm purchased a machine that cost $28,000 and is expected to meet the needs of the business for 4 years. The
machine will depreciate by $7,000 per year and at the end of year 4 the machine will have no book value.
During its useful life the machine is expected to produce net cash flows of $9,000 per year.
a) Using the Accounting Rate of Return, you are asked to make a recommendation as to whether the project
should proceed?
b) Do you have enough information to make the assessment? What do you need?
Homework Answers
a)
Accounting Rate of Return=(9000-7000)/((28000+0)/2)=14.29%
b)
No we can't make the decision as we dont have a required threshold
accounting return
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A firm purchased a machine that cost $28,000 and is expected to
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