Germain Company purchased a new machine for $200,000 and will use the straight-line method of depreciation over 4 years with no salvage value

Accounting Aug 14, 2020

Germain Company purchased a new machine for $200,000 and will use the straight-line method of depreciation over 4 years with no salvage value. If the company's minimum annual rate of return is 10%, this investment must generate expected annual income of

A.$10,000

B.$3,000

C.$20,000

D.$50,000

Expert Solution

Computation of the expected annual income:-

Average investment = ( Initial investment + Salvage value)/2

= ($200,000+0)/2

= $100,000

Expected annual income = Average investment * Annual rate of return

= $100,000 * 10%

= $10,000

Correct option is A). $10,000

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