cturecomcourses23736quizzes18601take Ambrose Inc has investe

cture.com/courses/23736/quizzes/18601/take Ambrose, Inc. has invested in a new production equipment at a cost of $12,000. The equipment has an estimate useful life of 8 years. The estimated annual sales and operating expenses related to the equipment are as follows: Annual cash inflow: $22,000 Labor costs: $18,000 . Depreciation: $1,500 Income before taxes: $2,500 Income taxes (40%): $1,000 . Net income: $1,500 The accounting rate of return (ARR) of the investment in equipment is approximately 12.5%. 20.8%. 25.0%. 33.3%. Question 20 A capital project should probably be accepted if the net present value is great than zero

Solution

Accounting rate of return:

= Net income/Cost of equipment

= $1,500/$12,000

= 12.5%

Hence, correct option is 12.5%