Antonio, Inc., has invested in new production equipment at a cost of $24,000. The equipment has an estimated useful life of eight years. The estimated annual sales and operating expense related to the equipment are as follows:
|
Annual sales |
$44,000 |
|
Labor costs. |
(36,000) |
|
Depreciation of equipment |
(3,000) |
|
Operating income |
$ 5,000 |
|
Income taxes (40%). |
(2,000) |
|
Net income |
$ 3,000 |
The accounting rate of return is approximately
a. 12.5%.
b. 20.8%.
c. 25.0%.
d. 33.3%.