BFT Limited is planning to invest in a new project. The project will last for four years and cost £800,000. Depreciation on project assets is provided on the reducing balance basis at the rate of 25% over the life of the project. Net cash inflows from the project in years 1 to 4 are expected to be £225,000, £250,000, £275,000 and £210,000. It is anticipated that the project assets will be sold for their carrying amount at the end of year 4. What is the accounting rate of return for this project?

Question

Quizplus · Accepted Answer

The Answer of BFT Limited is planning to invest in a new project. The project will last for four years and cost £800,000. Depreciation on project assets is provided on the reducing balance basis at the rate of 25% over the life of the project. Net cash inflows from the project in years 1 to 4 are expected to be £225,000, £250,000, £275,000 and £210,000. It is anticipated that the project assets will be sold for their carrying amount at the end of year 4. What is the accounting rate of return for this project?

BFT Limited Is Planning to Invest in a New Project