Palmer (Corp) is considering the purchase of a new piece of equipment

Accounting Nov 30, 2020

Palmer (Corp) is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income after tax of $159,600. The equipment will have an initial cost of $532,000 and have a 7 year life. If the salvage value of the equipment is estimated to be $14,000, what is the accounting rate of return? Multiple Choice O 47.11% O O 19.28% O O 30.00% 152.37%

Expert Solution

Answer: 30%

Working:

Accounting rate of return(ARR) = Average annual profit after tax / initial investment

ARR = $ 159,600/ $ 532,000

ARR = 30%

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