Watson Corporation Is Considering Buying a Machine for $25,000

question 32

Multiple Choice

Watson Corporation is considering buying a machine for $25,000.Its estimated useful life is 5 years,with no salvage value.Watson anticipates annual net income after taxes of $1,500 from the new machine.What is the accounting rate of return assuming that Watson uses straight-line depreciation and that income is earned uniformly throughout each year?

• A)6.0%.
• B)8.0%.
• C)8.5%.
• D)10.0%.
• E)12.0%.

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Definitions:

Cash Flow from Assets

The total amount of cash earned from a company's operations, investments, and financing activities.

Current Asset Purchases

The acquisition of assets that are expected to be converted into cash within a year.

Cash Generated

The total amount of money produced by a company through its operational activities in a specific period.

Comprehensive Income

The total change in equity for a business enterprise during a period from transactions and other events from non-owner sources.