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What is the annual accounting rate of return

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Quip Corporation wants to purchase a new machine for $288,000. Management predicts that the machine will produce sales of $184,000 each year for the next 8 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $79,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 40%.

Problem 1: What is the annual accounting (book) rate of return (ARR) for the proposed investment, based on the initial investment? (Round answer to nearest whole percentage.)

Reference no: EM132815431

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