Glencoe Company is considering purchasing equipment that would increase revenues by \$180,000 per year with incremental cash operating expenses of \$80,000 per year. The equipment would cost \$360,000 and have a ten-year useful life with a salvage value of \$10,000 at the end of its useful life.
Calculate the accounting rate of return based on net initial investment. The company uses straight-line depreciation. Ignore income taxes. (Note that the accounting rate of return is sometimes called the accrual accounting rate of return or the simple rate of return.)