Carmel corporation is considering the purchase of a machine costingg $41,000 wit

Question

Carmel corporation is considering the purchase of a machine costingg $41,000 with a 8-year useful life and no salvage value. carmel uses straight-line depreciation and assume that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment? A. $41,000 B. $23,063. C. $20,500 D. $5,766 18) The following data concerns a Proposed equipment Purchase: The annual average investment amount used to calculate the accounting rate of return is: A. $81,500 B. $79,000 C. $40,750 D. $84,000

Explanation / Answer

Ans 17 C $20500

Average investment is opening plus beginning dividded by 2 . If company uses straight line method of depreciation than average investment can be calculated as (Cost of the asset+Salvage value)/2= (41000+0)/2= $20500

Ans 18 D $84000

If straight line depreciation method is used. Average Investment= (Cost of Asset + Salvage value)/2=(163000+5000)/2= $84000

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