How much is accounting rate of return

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Reference no: EM13777592

Edy's, Inc. wants to purchase of a new ice cream truck with a cost of $51,000. Edy's has a cost of capital of 7.4% and a required rate of return of 10.4%. Its income tax rate is 32%. The acquisition is proposed for January 1, 2011. Edy's expects it can sell the truck for $7,000 at end of its useful life of 4 years. Edy's estimates the following incremental amounts to be generated by the truck:

Year 1 Net income $4,200 Operating cash flows 15,200

How much is accounting rate of return?

A. 14.48%

B. 56.64%

C. 10.64%

D. 18.71%

E. Some other answer

Year 2 $5,600 16,600

Year 3 $6,100 17,100

Year 4 $5,800 16,800

Reference no: EM13777592

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