Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $75,000, what is the accounting rate of return? Ignore income taxes.
A. 26.67%
B. 6.25%
C. 25.00%
D. 8.75%
Answer: D
Business
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