Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return
Melnik Company wants to buy a new machine costing $800,000. The equipment will last five years with no expected salvage value. The expected after-tax cash flows
associated with the project follow:
Year Cash Revenues Cash Expenses
1 $1,400,000 $1,116,000
2 1,400,000 1,116,000
3 1,400,000 1,116,000
4 1,400,000 1,116,000
5 1,400,000 1,116,000
Required:
Compute the equipment's accounting rate of return. Enter as a percent and round your answer to one decimal place.
Accounting rate of return