Landrum Corporation Is Considering Investing in Specialized Equipment Costing $260,000

question 171

Multiple Choice

Landrum Corporation is considering investing in specialized equipment costing $260,000. The equipment has a useful life of 5 years and a residual value of $15,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment are: Landrum Corporation's required rate of return on investments is 20%.
What is the accounting rate of return on the investment?

• A)6)54%
• B)5)15%
• C)18.85%
• D)25.38%

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Definitions:

Profit

The financial gain obtained when the amount earned from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity.

Selling Price

The amount at which an item or service is sold to the customer.

Outstanding Balance

The amount of money owed on a loan or credit account that has not yet been repaid.

Invoice

A document indicating a transaction between a buyer and a seller, listing the goods or services provided along with their prices and the total amount due.