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Managerial Accounting

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Powell ARR Average Investment

MGRACT-3PVCLM

Powell Company is considering purchasing equipment that would increase revenues by \$400,000 per year with incremental cash operating expenses of \$260,000 per year. The equipment would cost \$500,000 and have a ten-year useful life with a salvage value of \$20,000 at the end of its useful life.

Ignoring income taxes, calculate the accounting rate of return based on average investment. The company uses straight-line depreciation. (Note that the accounting rate of return is sometimes called the accrual accounting rate of return or the simple rate of return.)

A

18.4%

B

28.0%

C

35.4%

D

53.8%