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What three flaws are inherent in this decision rule

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Reference no: EM131769451

Question - Average Accounting Returns

Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts.

 

PURCHASE DATE

YEAR 1

YEAR 2

YEAR 3

YEAR 4

Gross Investment

$28,000

$28,000

$28,000

$28,000

$28,000

Less: Accumulated depreciation

0

7,000

14,000

21,000

28,000

Net Investment

$28,000

$21,000

$14,000

$7,000

$0

The machine generates, on average, $4,300 per year in additional net income.

Required -

a. What is the average accounting return for this machine?

b. What three flaws are inherent in this decision rule?

Reference no: EM131769451

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