Nylan Tiles is considering an investment in new equipment costing $858,000
The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a residual value of $62,000. The equipment is expected to generate net cash inflows of $1,002,000 in total during the five-year life. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.)
A) 12.36%
B) 8.96%
C) 45.23%
D) 9.34%
B .B)
*Average amount invested = (Amount invested + Residual value) / 2
ARR of Equipment = Average annual operating income / Average amount invested
ARR = $41,200 / $460,000 = 8.96% (Rounded)
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