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 initial capital.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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:
                                             

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