Solutions Tool Co Compute the Accounting Rate of Return on the Investment

question 27

Essay

Solutions Tool Co.is considering investing in specialized equipment costing $975,000.The equipment has a useful life of five years and a residual value of $75,000.Depreciation is calculated using the straight-line method.The expected net cash inflows from the investment are given below:
$\begin{array}{ll}\text { Year 1 } & \$ 275,000 \\\text { Year 2 } & 220,000 \\\text { Year 3 } & 200,000 \\\text { Year 4 } & 200,000 \\\text { Year 5 } & 180,000\\&\$1,075,000\end{array}$ Compute the accounting rate of return on the investment.Show your calculations and round to two decimal places.

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