ABC is considering investing in two machines; Machine A and Machine B with initial investments of $4,000,000 and $5,000,000 respectively. Each project is expected to have a life of five (5) years. The after tax profits generated by the projects are as follows: Machine AMachine BAfter tax profits$$Year 11 000 0001 400 000Year 21 200 0001 500 000Year 31 300 0001 600 000Year 41 200 0001 400 000Year 51 000 0001 200 000 Required: Calculate the accounting rate of return (ARR) on average capital.

Accounting rate of return is a technique of capital budgeting where rate of return on a project is…

Answered: ABC is considering investing in two…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PA: Jasmine Manufacturing is considering a project that will require an initial investment of $52,000...

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ABC is considering investing in two machines; Machine A and Machine B with initial investments of $4,000,000 and $5,000,000 respectively. Each project is expected to have a life of five (5) years. The after tax profits generated by the projects are as follows:

	Machine A	Machine B
After tax profits	$	$
Year 1	1 000 000	1 400 000
Year 2	1 200 000	1 500 000
Year 3	1 300 000	1 600 000
Year 4	1 200 000	1 400 000
Year 5	1 000 000	1 200 000

Required:

Calculate the accounting rate of return (ARR) on average capital.

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