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Question(s) / Instruction(s):

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below.

Sales                                                                                        $90,000

Costs:

Manufacturing                                                            $52,000

Depreciation on machine                                    4,000

Selling and administrative expenses               30,000             (86,000)

Income before taxes                                                                4,000

Income tax (50%)                                                                   (2,000)

Net Income                                                                             $2,000

What is the accounting rate of return for this machine?  


A. 33.3%.


B. 16.7%.


C. 50.0%.


D. 8.3%.


E. 4%.

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