What is the estimated accounting rate of return

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Question - Hammer Corporation wants to purchase a new machine for $294,000. Management predicts that the machine will produce sales of $203,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $68,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Hammer's combined income tax rate, t, is 20%.

Required - What is the estimated accounting (book) rate of return (ARR) for the proposed investment, based on average investment?

a. 22%.

b. 24%.

c. 27%.

d. 34%.

e. 44%.

Reference no: EM133107927

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