Talbot Company expects income of $2,000 per year over the life of an investment that will cost $25,000. The calculation of the accounting rate of return is .16. The rate of return indicates that

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated as the annual income divided by the initial investment. Here, $2,000 / $25,000 = 0.08 or 8%, not 16%. However, the question states 0.16, which implies an error in the given rate. Assuming the correct calculation, the rate indicates the percentage of the investment expected to be earned annually.

Talbot Company Expects Income of $2,000 Per Year Over the Life