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Compute the accounting rate of return on initial investment

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Question - Hancheta Inc. is considering the purcase of a new vehicle for P350,000. The firm's old vehicle has a book value of P85,000, but can only be sold for P60,000. The new vehicle will be depreciated using a 5 year useful life and the straight line method. It is expected to save P62,000 after taxes from the reduced fuel and maintenance expenses. Tabletop Raul is in the tax bracket and has a 12% cost of capital. Compute the accounting rate of return on initial investment.

Reference no: EM133085922

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