Colin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project.
A)6.94 percent
B)13.88 percent
C)15.66 percent
D)27.75 percent
E)31.31 percent

Question

Colin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The project's assets will be depreciated using straight-line depreciation to a zero book value over the life of the project. 
A)6.94 percent 
B)13.88 percent 
C)15.66 percent 
D)27.75 percent 
E)31.31 percent

Quizplus · Accepted Answer

The average accounting rate of return formula is:

Average Accounting Rate of Return = Average Annual Operating Income / Initial Investment

Based on the given data, the initial investment is $90,000 and the average annual operating income is $12,472. Therefore:

Average Accounting Rate of Return = $12,472 / $90,000 = 0.13858 or 13.88 percent

Therefore, B) 13.88 percent is the correct answer.

Colin Is Analyzing a Project and Has Gathered the Following