What is the accounting rate of return for this machine?

A company is considering the purchase of a new
machine for $48,000. Management predicts that the machine can produce sales of
$16,000 each year for the next 10 years. Expenses are expected to include
direct materials, direct labor, and factory overhead totaling $8,000 per year
plus depreciation of $4,000 per year. The company’s tax rate is 40%. What is
the payback period for the new machine?

A.
3.0 years.
B.
6.0 years.

C.
7.5 years.

D.
12.0 years.

E.
20.0 years.

68.
A company is planning to purchase a machine that
will cost $24,000, 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 payback period for
this machine?
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A.
24
years.
B.
12 years.

C.
6 years.

D.
4 years.

E.
1 year.

69.
A company is planning to purchase a machine that
will cost $24,000, 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?
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A.
33.3%.

B.
16.7%.

C.
50.0%.

D.
8.3%.
E.
4%.

70.
After-tax
net income divided by the annual average investment in an investment, is the:
A.
Net present value rate.
B.
Payback rate.

C.
Accounting rate of return.

D.
Earnings from investment.

E.
Profit rate.

71.
A company buys a machine for $60,000 that has an
expected life of 9 years and no salvage value. The company anticipates a yearly
net income of $2,850 after taxes of 30%, with the cash flows to be received
evenly throughout each year. What is the accounting rate of return?

A.
2.85%.
B.
4.75%.

C.
6.65%.

D.
9.50%.

E.
42.75%.

72.
Monterey Corporation is considering the purchase
of a machine costing $36,000 with a 6-year useful life and no salvage value.
Monterey uses straight-line depreciation and assumes that the annual cash
inflow from the machine will be received uniformly throughout each year. In
calculating the accounting rate of return, what is Monterey’s average
investment?

A.
$6,000.

B.
$7,000.

C.
$18,000.
D.
$21,000.

E.
$36,000.
63.
The time expected to pass before the net cash
flows from an investment would return its initial cost is called the: A.
Amortization period. B.
Payback period. C.
Interest period. D.
Budgeting period. E.
Discounted cash flow period. 64.
A company is considering purchasing a machine for
$21,000. The machine will generate an after-tax net income of $2,000 per year.
Annual depreciation expense would be $1,500. What is the payback period for the
new machine? A.
4 years. B.
6 years. C.
10.5 years. D.
14 years. E.
42 years. 65.
A company is considering the purchase of a new
piece of equipment for $90,000. Predicted annual cash inflows from this
investment are $36,000 (year 1), $30,000 (year 2), $18,000 (year 3), $12,000
(year 4) and $6,000 (year 5). The payback period is: A.
4.50 years. B.
4.25 years. C.
3.50 years. D.
3.00 years. E.
2.50 years. 66.
A
disadvantage of using the payback period to compare investment alternatives is
that: A.
It ignores cash flows beyond the payback period. B.
It includes the time value of money. C.
It cannot be used when cash flows are not uniform.
D.
It cannot be used if a company records
depreciation. E.
It cannot be used to compare investments with
different initial investments. 67.
A company is considering the purchase of a new
machine for $48,000. Management predicts that the machine can produce sales of
$16,000 each year for the next 10 years. Expenses are expected to include
direct materials, direct labor, and factory overhead totaling $8,000 per year
plus depreciation of $4,000 per year. The company’s tax rate is 40%. What is
the payback period for the new machine? A.
3.0 years. B.
6.0 years. C.
7.5 years. D.
12.0 years. E.
20.0 years. 68.
A company is planning to purchase a machine that
will cost $24,000, 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 payback period for
this machine? 1clip_image002.jpg”>A.