A company is considering the purchase of equipment that costs $120,000 and has an estimated residual value of $10,000 after its 5 year useful life. It is expected togenerate total net income of $95,000 over its useful life. What is the average rate of return of this investment?

The average rate of return (ARR) can be calculated using the formula:𝐴𝑅𝑅=Average Annual…

Answered: A company is considering the purchase…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A company is considering the purchase of equipment that costs $120,000 and has an estimated residual value of $10,000 after its 5 year useful life. It is expected to generate total net income of $95,000 over its useful life. What is the average rate of return of this investment?