The Auto Shop Is Buying Some New Equipment at a Cost

Multiple Choice

The Auto Shop is buying some new equipment at a cost of $218,900. This equipment will be depreciated on a straight line basis to a zero book value its 8-year life. The equipment is expected to generate net income of $36,000 a year for the first four years and $22,000 a year for the last four years. What is the average accounting rate of return?

A) 15.48 percent
B) 17.76 percent
C) 18.09 percent
D) 23.72 percent
E) 26.50 percent