A company is planning to purchase a machine that will cost P240,000, have a six-year life, and be depreciated over a six-year period with no salvage value. The company expects to sell the machine's output of 30,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales Costs:                                                                                 P 900,000 Manufacturing                                            P 520,000                           Depreciation on machine                         40,000                                Selling and administrative expenses       300,000                 (860,000 ) Income before taxes                                                                 P 40,000 Income tax (25%)                                                                       (10,000 ) Net income                                                                                 P 30,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT
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Chapter10: Capital Budgeting: Decision Criteria And Real Option
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A company is planning to purchase a machine that will cost P240,000, have a six-year life, and be depreciated over a six-year period with no salvage value. The company expects to sell the machine's output of 30,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine?

Sales Costs:                                                                                 P 900,000

Manufacturing                                            P 520,000                          

Depreciation on machine                         40,000                               

Selling and administrative expenses       300,000                 (860,000 )

Income before taxes                                                                 P 40,000

Income tax (25%)                                                                       (10,000 )

Net income                                                                                 P 30,000

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