A company is evaluating three possible investments. Each uses the straight -line

Question

A company is evaluating three possible investments. Each uses the straight -line method of depreciation. Following information is provided by the company: red Project A Project B Project C $228,000$52,000 $228,000 0 10,000 34,000 on Investment Residual value Net cash flows: Year 1 Year 2 Year 3 Year 4 Year 5 56,00024,00086,000 56,00015,000 56,000 56,00011,00066,000 56,000 56,000 8,00026,000 0 What is the accounting rate of return for Project B? (Round your answer to two decimal places.) Select one: O A. 20.84% 0 B. 9.82% C. 12.22%

Explanation / Answer

Solution:- D. 12.90%

Explanation:-

Average annual income = (58,000 - 42,000) / 4 = 4,000

Average investment = (52,000 + 10,000) / 2 = 31,000

Accounting rate or return = (4,000 / 31,000) * 100 = 12.90%

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