Managerial Accounting

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Ingle Partners: Accounting Rate of Return


Ingle Partners is considering buying technology with an initial cost of \$52,500. The data gathered to evaluate is in the table below.

Year Asset Book Value Yearly After-Tax Net Cash Flows Yearly Net Income
1 \$35,000 \$20,000 \$2,500
2 21,000 17,500 3,500
3 10,500 15,000 4,500
4 3,500 12,500 5,500
5 --- 10,000 6,500

There will be no salvage value at the end of the investment's life. Ingle Partners uses a 14% after-tax target rate of return as the decision criteria for new projects.

What is this project's accrual accounting rate of return, assuming they use the initial investment in the computation (not the average invested assets) and depreciation is already included in the Net Income computation?