A company is planning to purchase a machine that will cost $33,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?
| Sales |
|
$138,000 |
| Costs: |
|
|
| Manufacturing |
$53,600 |
|
| Depreciation on machine |
5,600 |
|
| Selling and administrative expenses |
46,000 |
(105,200) |
|
|
|
| Income before taxes |
|
$32,800 |
| Income tax (35%) |
|
(11,480) |
|
|
|
| Net income |
|
$21,320 |
|
|
|