An investment of $5,000 provides an average net cash flows of $320 with zero salvage value. Depreciation is $35 per year. The accounting rate of return using the original investment is

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) is calculated by dividing the average net income by the initial investment.

Average net income = average net cash flow - depreciation
= $320 - $35 
= $285

ARR = (average net income / initial investment) x 100
= ($285 / $5,000) x 100
= 5.7%

Therefore, the best choice is C.

An Investment of $5,000 Provides an Average Net Cash Flows