Carmel Corporation is considering the purchase of a machine costing $47,000 with a 7-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment

$23,500

Explanation:

The average accounting rate of return is the rate of return on the investment in the project considering the average annual net income and the average amount of investment made in the project.

In other words, it is the average annual net income expressed as a percentage of the average investment as shown below

average accounting rate of return =average annual net income / average investment.  

average investment=(initial capital outlay+book value of the project at end of useful life)/2

initial capital outlay=$47,000

book value of the project at end of useful life=$0

average investment=($47,000+$0)/2

average investment=$23,500

the investment was $14,174.196

explanation:

a lump sum means that the father of the example made one deposit and leave it be.

we need to know the value of a capital that generated at 4.05% per year during 28 years the sum of $48,613.24

now clearing the formula to solve for capital we got:

and we reach the answer investment = $14,174.20

answer; measurable outcome;