(Answered) Question - average accounting returnsyour firm is

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Question - Average Accounting Returns

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	$28,000	$28,000	$28,000	$28,000
Less: Accumulated depreciation	0	7,000	14,000	21,000	28,000
Net Investment	$28,000	$21,000	$14,000	$7,000	$0

The machine generates, on average, $4,300 per year in additional net income.

Required -

a. What is the average accounting return for this machine?

b. What three flaws are inherent in this decision rule?

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