You%u2019re trying to determine whether to expand your business by building a ne

Question

You%u2019re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.4 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,794,300, $1,847,600, $1,816,000, and $1,269,500 over these four years, what is the project%u2019s average accounting return (AAR)? (Round your answer to 2 decimal places. (e.g., 32.16))

You%u2019re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.4 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,794,300, $1,847,600, $1,816,000, and $1,269,500 over these four years, what is the project%u2019s average accounting return (AAR)? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

AAR= Average Net Income/Average Book Value = (1794300 + 1847600 + 1816000 + 1269500)/4 = 1681850

Average Book Value = 11400000/2 = 5700000 = 1681850/5700000 = 29.51%

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