Carmel Corporation is considering the purchase of a machine costing $41,000 with
ID: 2535605 • Letter: C
Question
Carmel Corporation is considering the purchase of a machine costing $41,000 with a 8-year useful life and no salvage value. Carmel uses straight line depreciation and assumes that the annual cash inflow from the machine will be recieved uniformaly 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
The following data concerns a proposed equipment purchase:
COST: $163,000
Salvage Value: $5,000
Estimated useful life: 4 years
Annual net cash flows: $47,100
Depreciation Method: Straight-Line
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
1) C. $20,500
Average investment = ($41,000 + $0) / 2 = $20,500
2) D. $84,000
Annual average investment = ($163,000 + $5,000) / 2 = $84,000