Reference no: EM132598204

Question 1: A company is planning to purchase a machine that will cost $31,200 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

Sales $99,000

Costs:

Manufacturing $50,600

Depreciation on machine 5,200

Selling and administrative expenses 39,000 (94,800)

Income before taxes $4,200

Income tax (40%) (1,680)

Net income $2,520

Multiple Choice

Option 1: 5.20%.

Option 2: 33.33%.

Option 3: 50.00%.

Option 4: 16.15%.

Option 5: 8.08%.