The Following Data Concerns a Proposed Equipment Purchase: Assuming That

question 38

Multiple Choice

The following data concerns a proposed equipment purchase: Assuming that net cash flows are received evenly throughout the year, the accounting rate of return is:

• A) 62.3%.
• B) 32.0%.
• C) 15.0%.
• D) 7.7%.
• E) 5.0%.

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Definitions:

Amortization

The process of gradually writing off the initial cost of an asset over its useful life, applicable to intangible assets.

Acquisition Differential

The gap between what is paid to buy a company and the net worth of its recognizable assets and debts.

Equity Method

A financial recording method for logging investments in subsidiary entities where the investor has considerable sway but lacks complete dominance.

Goodwill

An intangible asset that arises when a company acquires another business for a price higher than the fair value of its identifiable net assets.