A Company Is Planning to Purchase a Machine That Will

question 134

Multiple Choice

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a six-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? $\begin{array}{llr} \text { Sales } &&\$90,000\\ \text { Costs:} &\\ \text { Manufacturing } &\$52,000\\ \text { Depreciation on machine } &4,000\\ \text {Selling and administrative expenses } &30,000&(86,000) \\ \text {Income before taxes } &&\$4,000\\ \text {Income tax \( (50 \%) \) } &&(2,000) \\ \text {Net income } &&\$2,000\end{array}$

• A) 16.7%.
• B) 50.0%.
• C) 4%.
• D) 8.3%.
• E) 33.3%.

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