A Company Purchases a Machine for $1,000,000

question 132

Short Answer

A company purchases a machine for $1,000,000. The machine has an expected life of 9 years and no salvage value. The company anticipates a yearly net income of $60,000 after taxes of 30% to be received uniformly throughout each year. What is the accounting rate of return?

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Definitions:

Market Index

An aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date.

Active Portfolio

An active portfolio refers to a collection of investments that are managed and regularly adjusted by portfolio managers in an attempt to outperform the market.

Out-Of-The-Money Call

An options contract where the market price of the underlying asset is below the strike price, rendering it unprofitable to exercise.