Calculate the accounting rate of return

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Reference no: EM132042271

Barnes Company purchases a machine for $500,000. The machine has an expected life of 10 years and no salvage value. The company anticipates a yearly after-tax net income of $30,000 to be received uniformly throughout each of the ten years. Calculate the accounting rate of return?

Justin Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows:

End of year Machine A Machine B

1 $5,000 $1,000

2 $4,000 $2,000

3 $3,000 $12,000

Justin Manufacturing uses the net present value method to make the decision, and it requires a 15% annual return on its investments. The present value factors of 1 at 15% are: 1 year, 0.8696; 2 years, 0.7561; 3 years, 0.6575. Which machine should Justin purchase and why? Hint: This is a two-part question. Part 1. Make sure you calculate the NPV for both machines and Part 2. Which machine should the company invest in and why?

Reference no: EM132042271

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