Computing purchase happen on accounting rate of return

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Reference no: EM1310680

Q1) Drive-Thru needs the average accounting return (AAR) of at least 17% on all fixed asset purchases. Presently, it is considering some new equipment costing $168,000. This equipment will have four-year life over which time it will be depreciated on straight line basis to zero book value. Annual net income from this equipment is evaluated at $8,100, $10,300, $17,900, and $19,600 for four years. Must this purchase happen based on accounting rate of return? Why or why not?

Reference no: EM1310680

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