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What is the average accounting rate of return(APR) on a piece of equipment that will cost...

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Finance

What is the average accounting rate of return(APR) on a piece ofequipment that will cost $ 1.2 million and that will result inpretax cost savings of $380,000 for the first three years and then$280,000 for the following three years? Assume that the machinerywill be depreciated to a salvage value of 0 over six years usingthe straight line method and the company’s tax rate if 32 percent.If the acceptance decision is based on the project exceeding an APROF 20 percent, should this machinery be purchased?

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Average Accounting rate of return Average Net Income Initial Investment in equipment Calculation of Average net Income Year 1 2 3 4 5 6 Pretax cost savings 38000000    See Answer
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What is the average accounting rate of return(APR) on a piece ofequipment that will cost $ 1.2 million and that will result inpretax cost savings of $380,000 for the first three years and then$280,000 for the following three years? Assume that the machinerywill be depreciated to a salvage value of 0 over six years usingthe straight line method and the company’s tax rate if 32 percent.If the acceptance decision is based on the project exceeding an APROF 20 percent, should this machinery be purchased?

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