Prescott Corporation is considering an investment in new equipment costing $918,000. The equipment will be depreciated on a straight-line basis over a ten-year life and is expected to have a residual value of $98,000. The equipment is expected to generate net cash inflows of $152,000 for each of the first five years and $116,000 for each of the last five years. What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places.)
A) 10.95%
B) 11.34%
C) 9.05%
D) 10.24%
D) 10.24%
*Average amount invested = (Amount invested + Residual value) / 2
ARR of Equipment = Average annual operating income / Average amount invested
ARR = $52,000 / $508,000 = 10.24% (Rounded)
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