Clapton Corporation Is Considering an Investment in New Equipment Costing

question 96

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) 17.3%
• D) 9.7%

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Definitions:

Antelope

A diverse group of typically horned, swift, and slender animals native to various regions in Africa and Eurasia.

Efficiency Wage

The theory that employers pay a higher wage than the market equilibrium to increase worker productivity and reduce turnover.

Labor

The effort by humans to produce goods or services in exchange for wages or salary.

Supply

The total amount of a product or service that is available to consumers, often influenced by price, production costs, and external factors.