Your firm is considering purchasing a machine with the follo

Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts. Purchase Date $57,000 Year 4 $57,000 $57,800 $57,800 $57,080 57,000 Year Year 1 14,250 $42,75 0 ear 3 Gross investment Less: Accumulated depreciation Net investment 42.7505718 28r300 $57,000 $28,508 $14,258 The machine generates, on average, $5,600 per year in additional net income. What is the average accounting return for this machine? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g. 3216.) AAR 0%

Solution

Initial Investment = $57,000
Residual Value = $0
Annual Net Income = $5,600

Average Investment = (Initial Investment + Residual Value) / 2
Average Investment = ($57,000 + $0) / 2
Average Investment = $28,500

Average Accounting Return = Annual Net Income / Average Investment
Average Accounting Return = $5,600 / $28,500
Average Accounting Return = 19.65%