How much is the accounting rate of return of new business


Geronimo Company is considering entering a new line of business. Starting the business will require an initial investment in equipment of $400,000 with a salvage value of $40,000. It is expected that the new business will increase net income by $80,000 per year for five years. The equipment will be depreciated over a five-year period using straight-line depreciation with no residual value. How much is the accounting rate of return of the new business?

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Accounting Basics: How much is the accounting rate of return of new business
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