# 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.