Compute accounting rate of return on investment

Reference no: EM1358124

Mahtomedi Corporation is considering investing in specialized equipment costing $240,000. The equipment has a useful life of five years and a residual value of $20,000. Depreciation is calculated using the straight line method. The expected net cash inflows from the investment are as follows:

Year 1 $60,000

Year 2 90,000

Year 3 110,000

Year 4 40,000

Year 5 25,000

Total cash inflows $325,000

Mahtomedi Corporation's required rate of return on investments is 14%.

What is the accounting rate of return on the investment?

Reference no: EM1358124

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