A company is evaluating three possible investments. Each uses the straightminusline method of depreciation. Following information is provided by the company: Project A Project B Project C Investment $ 228 comma 000 $ 54 comma 000 $ 228 comma 000 Residual value 0 16 comma 000 30 comma 000 Net cash inflows: Year 1 66 comma 000 36 comma 000 100 comma 000 Year 2 66 comma 000 27 comma 000 70 comma 000 Year 3 66 comma 000 23 comma 000 80 comma 000 Year 4 66 comma 000 20 comma 000 40 comma 000 Year 5 66 comma 000 0 0 What is the accounting rate of return for Project B? (Round your answer to two decimal places.)

Question

Business

Pop Tart

3 September, 11:08

A company is evaluating three possible investments. Each uses the straightminusline method of depreciation. Following information is provided by the company: Project A Project B Project C Investment $ 228 comma 000 $ 54 comma 000 $ 228 comma 000 Residual value 0 16 comma 000 30 comma 000 Net cash inflows: Year 1 66 comma 000 36 comma 000 100 comma 000 Year 2 66 comma 000 27 comma 000 70 comma 000 Year 3 66 comma 000 23 comma 000 80 comma 000 Year 4 66 comma 000 20 comma 000 40 comma 000 Year 5 66 comma 000 0 0 What is the accounting rate of return for Project B? (Round your answer to two decimal places.)

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Answers (1)

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Rayne Macias · Answer 1

the accounting rate of return for Project B is 74.29 % (2. dp)

Explanation:

Accounting Rate of Return = Average Profit/Average Investment * 100

Average Profit for Project B

Average Profit = Sum of Profit/Number of Years

= (36,000+27,000+23,000+20,000) / 4

= 106,000 / 4

= 26,000

Average Investment for Project B

Average Investment = (Initial Investment + Scrap Value) / 2

= (54,000 + 16,000) / 2

= 35,000

Accounting Rate of Return for Project B

Accounting Rate of Return = 26,000/35,000 * 100

= 74.29 % (2. dp)