Edy's, Inc. wants to purchase of a new ice cream truck with a cost of $51,000. Edy's has a cost of capital of 7.4% and a required rate of return of 10.4%. Its income tax rate is 32%. The acquisition is proposed for January 1, 2011. Edy's expects it can sell the truck for $7,000 at end of its useful life of 4 years. Edy's estimates the following incremental amounts to be generated by the truck:
Year 1 Year 2 Year 3 Year 4 Net income $4,200 $5,600 $6,100 $5,800 Operating cash flows 15,200 16,600 17,100 16,800
How much is accounting rate of return?
A. 14.48% B. 56.64% C. 10.64% D. 18.71% E. Some other answer