Question 3 (of 8) .value 10.00 points You\'re trying to determine whether to exp

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Question 3 (of 8) .value 10.00 points You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12.5 million, which will be depreciated straight-line to zero over its four- year life. If the plant has projected net income of $1,904.300, $1,957,600, $1,926,000, and $1,379,500 over these four years, what is the project's average accounting return (AAR)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) Average accounting return 14.33% References Worksheet Difficulty: Basic Previous attempt

Explanation / Answer

ARR = Average Accounting Profit/ Average Investment

Annual Depreciation = (Initial Investment ? Scrap Value) ÷ Useful Life in Years

                              = (12500000)/4 = 3125000

Average income = (1904300 + 1957600 + 1926000 + 1379500)/4 = 1791850

ARR = 1791850/ 12500000 = 0.14334 or 14.33%

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