Weston's uses straight-line depreciation to zero over a project's life. A new project has a fixed asset cost of $2,687,300 and projected annual net income of $95,000, $162,000, $286,000, and $304,000 over Years 1 to 4. What is the average accounting return?
A) 14.35 percent
B) 15.63 percent
C) 14.87 percent
D) 15.76 percent
E) 16.05 percent

Question

Quizplus · Accepted Answer

The average accounting return is calculated by dividing the average annual net income by the average total assets. The average annual net income is the sum of the annual net incomes over the project's life divided by the number of years. The average total assets is the sum of the fixed asset cost and the average annual net income divided by 2. The average accounting return is therefore:(95,000 + 162,000 + 286,000 + 304,000) / 4 / (2,687,300 + (95,000 + 162,000 + 286,000 + 304,000) / 4 / 2) = 15.76%

Weston's Uses Straight-Line Depreciation to Zero Over a Project's Life