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Compute the accounting rate of return on initial investment

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Question - Ancheta Inc. is considering the purchase of a new vehicle for P350,000. The firm's old vehicle has a book value of 85,000, 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. Ancheta Inc. is in the 34% tax bracket and has a 12% cost of capital. Compute the accounting rate of return on initial investment.

Reference no: EM133092782

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