Gunslinger Company Is Considering the Purchase of Pipe Cutting Equipment

Multiple Choice

Gunslinger Company is considering the purchase of pipe cutting equipment. Data on the equipment are as follows: $$\begin{array} { l r } \text { Original investment } & \$ 35,000 \\\text { Net annual cash inflow } & \$ 8,000 \\\text { Expected economic life in years } & 5 \\\text { Salvage value at the end of five years } & \$ 3,500\end{array}$$ The company uses the straight-line method of depreciation with no mid-year convention. What is the accounting rate of return on original investment rounded to the nearest percent, assuming no taxes are paid?

A) 22.86%
B) 2.86%
C) 18%
D) 4.86%