Calculate accounting rate of return

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A machine costs Rs. 10,000 with useful life of 5 years. It has a salvage value of Rs. 2,000 at the end of its useful life. The machine is expected to generate the following cash flows;

Year Cash Flow (PKR)

1 5,000

2 6,000

3 8,000

4 6,500

5 4,000

Calculate Accounting Rate of Return? Tax is applied at 30% per annum. Why Accounting Rate of Return is not among the favorite methodology to evaluate a project? In what circumstances results from accounting rate of return can prove useful.

Reference no: EM132546424

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