Straight-line depreciation
Olsen Inc. Purchased a $580,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand, and Olsen can sell all it can manufacture for the next ten years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have ten years of useful life and no salvage value at the end of these ten years. The firm uses straight-line depreciation. The net cash inflow is expected to be $151,000 each year. Olsen uses a discount rate of 12% in evaluating its capital investments. The estimated accounting (book) rate of return (to two decimal places) based on the average investment for this proposed investment is:
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