M11-2 Calculating Accounting Rate of Return [LO 11-1 What is the accounting rate

Question

M11-2 Calculating Accounting Rate of Return [LO 11-1 What is the accounting rate of return for a project that is estimated to yield total income of $384,000 over three years and costs $855,000? (Round your answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.)) Rate of Retun References eBook&Resources; Worksheet Difficulty: 1 Easy M11-2 Calculating Accounting Rate of Return [LO 11-1 Learning Objective: 11-01 Calculate the accounting rate of retum and describe its major weaknesses.

Explanation / Answer

ARR = Average Net profit / Average Investment

where. Average Net profit = $384,000 / 3 = $128,000

ARR = $128,000 / $855,000 = 0.1497 or 14.97%

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