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Average Accounting Return. Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts.
Purchase Date Year 1 Year 2 Year 3 Year 4
Gross Investment $28,000.00 $28,000.00 $28,000.00 $28,000.00 $28,000.00
Less: Accumulated Depreciation $0.00 $7,000.00 $14,000.00 $21,000.00 $28,000.00
Net Investment $28,000.00 $21,000.00 $14,000.00 $7,000.00 $0.00

The machine generates, on average, $4300 per uear in additional net income.
a. What is the average accounting return for this machine?
b. What three flaws are inherent in this decision rule?

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Accounting Basics, Accounting

Category:- Accounting Basics
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