What is the average accounting return of the investment

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Reference no: EM131336400

Western Printing Co. has an opportunity to purchase a $2 million printing machine. The machine has an economic life of five years and will be worthless after that time. It will generate net income of $100,000 one year from today and the income stream will grow at seven percent per year thereafter. The company uses straight-line depreciation (i.e., equal depreciation each year). What is the average accounting return of the investment? Should the machine be purchased if Western Printing’s average accounting return cutoff is 20 percent?

Reference no: EM131336400

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