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Managerial Accounting

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Glencoe ARR Salvage Value

MGRACT-7PVY5Q

Glencoe Company is considering purchasing equipment that would increase revenues by \$180,000 per year with incremental cash operating expenses of \$80,000 per year. The equipment would cost \$360,000 and have a ten-year useful life with a salvage value of \$10,000 at the end of its useful life.

Calculate the accounting rate of return based on net initial investment. The company uses straight-line depreciation. Ignore income taxes. (Note that the accounting rate of return is sometimes called the accrual accounting rate of return or the simple rate of return.)

A

17.8%

B

18.1%

C

27.8%

D

36.1%