A project produces annual net income of $10,500,$15,700,and $16,200 over its 3-year life and requires an initial investment in fixed assets of $210,000.The book value of these assets will be $140,007,$46,662,and $15,561 at the end of Years 1 to 3,respectively.What is the average accounting rate of return if the required discount rate is 14.5 percent?
A)13.46%
B)14.32%
C)13.98%
D)13.71%
E)14.62%

Question

Quizplus · Accepted Answer

Average net income = ($10,500 + $15,700 + $16,200)/ 3 = $14,133.33
Average book value = ($210,000 + $140,007 + $46,662 + $15,561)/ 4 = $103,057.50
AAR = $14,133.33 / $103,057.50 = 0.1371,or 13.71%

A Project Produces Annual Net Income of $10,500,$15,700,and $16,200 Over