Clapton Corporation Is Considering an Investment in New Equipment Costing

question 39

Multiple Choice

Clapton Corporation is considering an investment in new equipment costing $900 000. The equipment will be depreciated on a straight- line basis over a ten- year life and is expected to have a salvage value of $90 000. The equipment is expected to generate net cash flows of $140 000 for each of the first five years and $100 000 for each of the last five years. What is the accounting rate of return associated with the equipment investment?

• A)12.1%
• B)7.9%
• C)9.7%
• D)17.3%