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23 December, 12:41

A project has an initial cost of $31,300 and a three-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $1,750, $2,100, and $1,700 a year for the next three years, respectively. What is the average accounting return

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  1. 23 December, 16:29
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    11.82%

    Explanation:

    The formula to compute the average accounting rate of return is shown below:

    = Annual net income : average investment

    where,

    Annual net income is

    = ($1,750 + $2,100 + $1,700) : 3 years

    = $1,850

    And, the average investment would be

    = (Initial investment) : 2

    = ($31,300) : 2

    = $15,650

    Now placing these values to the above formula

    So, the rate would equal to

    = $1,850 : $15,650

    = 11.82%

    We simply applied the above formula
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