A Company Is Planning to Purchase a Machine That Will

question 39

Multiple Choice

A company is planning to purchase a machine that will cost $24,000 with a six-year life and no salvage value. 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………………………………………… $90,000
Costs:
Manufacturing……………………………… $52,000
Depreciation on machine…………………… 4,000
Selling and administrative expenses……….. 30,000 (86,000)
Income before taxes………………………... $ 4,000
Income tax (50%) …………………………... (2,000)
Net income…………………………………. $ 2,000

• A) 33.3%.
• B) 16.7%.
• C) 50.0%.
• D) 8.3%.
• E) 4%.

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