Cheryl Peck purchased a computer network for her classroom.The computer network cost $100,000.She estimates that she can charge $500 for one session in the classroom.Cheryl knows that enrollment will increase over time.She estimates 50 students the first year,75 students the second year,100 students the third year,and 150 students the fourth year.If her cost of capital is 12 percent,what is her accounting rate of return?

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated as the average annual profit divided by the initial investment. The total revenue over four years is $500 * (50 + 75 + 100 + 150) = $187,500. The average annual profit is $187,500 / 4 = $46,875. The accounting rate of return is $46,875 / $100,000 = 46.88%.

Cheryl Peck Purchased a Computer Network for Her Classroom