Hollister Company Is Considering the Purchase of a New Machine

question 105

Multiple Choice

Hollister Company is considering the purchase of a new machine for $60,000. The machine would generate an annual cash flow before depreciation and taxes of $25,647 for four years. At the end of four years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the accounting rate of return on the original investment in the machine approximated to two decimal points?

• A)17.75%
• B)12%
• C)10.65%
• D)25.65%

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