Question: 1. Why are capital budgeting decisions often difficult?
2. The following data relate to a company's decision on whether to purchase a machine:
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,000
Salvage value . . . . . . . . . . . . . . . . . . . . . . . 15,000
Annual after-tax net income . . . . . . . . . . . 40,000
The machine's accounting rate of return, assuming the even receipt of its net cash flows during the year and use of straight-line depreciation, is
(a) 22%,
(b) 41%, or
(c) 21%.