Assuming that straight line depreciation is used, the average accounting return for a project is computed as the average:
A) Net income of a project divided by the average total assets of a ﬁrm.
B) Book value of a project multiplied by the average proﬁt margin of the project.
C) Book value of a project divided by the average net income of the project.
D) Net income of a project divided by the average investment in the project.
E) Net income of the ﬁrm divided by the average investment in a project.

Question

Quizplus · Accepted Answer

The average accounting return is calculated by dividing the average net income of a project by the average investment in the project. Since the question mentions that straight line depreciation is used, we can assume that the book value of the project will decline evenly over time, making the average investment in the project equal to the initial investment in the project divided by 2. Therefore, the formula for calculating the average accounting return would be: Average Accounting Return = (Average Net Income of the Project) / (Initial Investment in the Project / 2) = (Net Income of the Project / Number of Years) / (Initial Investment in the Project / 2) = (2 x Net Income of the Project) / (Number of Years x Initial Investment in the Project).

Assuming That Straight Line Depreciation Is Used, the Average Accounting