A company is evaluating three possible investments. Each uses the straightminus-
ID: 2493228 • Letter: A
Question
A company is evaluating three possible investments. Each uses the straightminus-line method of depreciation. Following informatin is provided by the comany:
Project A Project B Project C
Investment $228 comma 000$228,000 $50 comma 000$50 $228 comma000$228,000
Residual value 0 20 comma 00020,000 28 comma 00028,000
Net cash flows:
year 1 52 comma 00052,000 32 comma 00032,000 80 comma 00080,000
year 2 52 comma 00052,000 23 comma 00023,000 50 comma 00050,000
year 3 52 comma 00052,000 19 comma 00019,000 60 comma 00060, 000
year 4 52 comma 00052,000 16 comma 00016,000 20 comma 00020,000
year 5 52 comma 00052,000 0 0
what is the accouting rate of return for Projct B? (round your answer to two decimal places.)
A. 42.8642.86%
B. 26.4426.44%
C. 42.6342.63%
D. 40.8440.84%
Explanation / Answer
Project B
Annual Depreciation = (50000 - 20000) / 4 = $7500
Accounting Income
Year 1 = (32000 - 7500) = $24500
Year 2 = (23000 - 7500) = $15500
Year 3 = (19000 - 7500) = $11500
Year 4 = (16000 - 7500) = $8500
Average Annual Income = ($24500 + $15500 + $11500 + $8500) / 4 = $15000
Accounting Rate of Return = $15000 / $50000 = 30%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.