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Managerial Accounting

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Accounting Rate of Return Based on Initial Investment

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Eddington Company purchased a machine for \$100,000 and uses straight-line depreciation with an estimated residual value of zero. The cash inflow from using the machine is expected to be \$30,000 per year for eight years. The accounting rate of return, based on the initial investment, is:

A

$17.5\%$

B

$30.0\%$

C

$42.5\%$

D

$571.0\%$