Sundance Detective Agency purchased new surveillance equipme

Sundance Detective Agency purchased new surveillance equipment with the following estimates. The year index is k = 1, 2, 3, . . .

First cost: $1050

Annual maintenance cost for 5 years: 75x5 = $350.

Total cost: 1050 + 350 = $1400

Salvage: $600

First cost – salvage / 5 = depreciation

(1050 – 600) / 5 = 450/5 = 90.

Extra annual revenue per year: 20 + 50 = $250

Incremental operating income per year = 250 – (75 + 90) = $85

Accounting rate of return = Incremental accounting income / Initial investment

Equal to: 85/1050 x 100 = 8.095%.

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