Hollister Company Is Considering the Purchase of a New Machine

question 105

Multiple Choice

Hollister Company is considering the purchase of a new machine for $60,000. The machine would generate an annual cash flow before depreciation and taxes of $25,647 for four years. At the end of four years, the machine would have no salvage value. The company's cost of capital is 12 percent. The company uses straight-line depreciation with no mid-year convention and has a 40 percent tax rate. What is the accounting rate of return on the original investment in the machine approximated to two decimal points?

• A)17.75%
• B)12%
• C)10.65%
• D)25.65%

---

Definitions:

Formal Reports

Detailed and structured reports often used in a professional setting to convey research, findings, and recommendations.

Visuals

Graphic elements such as diagrams, graphs, photographs, and videos that are used to support or convey information.

Significance

The importance or meaning of something, especially in terms of its impact or relevance.

Action Items

Specified tasks or activities that need to be completed, often identified in meetings or strategic plans to achieve particular objectives.