Clapton Corporation Is Considering an Investment in New Equipment Costing

question 36

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)8.89%
• B)9.23%
• C)8.52%
• D)7.88%

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Definitions:

Corrective Action

Measures taken to identify, eliminate, and prevent recurrence of defects or problems in a product, process, or system.

Variance Analysis

A technique used to identify and explain the reasons for differences between budgeted and actual financial performance.

Standard Costs

Predetermined costs assigned to goods and services, used as target prices to measure performance.

Actual Costs

The genuine costs incurred in the production of goods or services, including all direct labor, materials, and overhead expenses.