Figure 14-5.Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses:

-Refer to Figure 14-5. What is the accounting rate of return for the project?

Question

Figure 14-5.Sara Turner is considering investing $60,000 in a project with the following cash revenues and expenses:
 
-Refer to Figure 14-5. What is the accounting rate of return for the project?

Quizplus · Accepted Answer

To calculate the accounting rate of return, we first need to calculate the average annual profit, which is the sum of the annual cash revenues minus the annual cash expenses divided by the number of years.
Average annual profit = ($10,000 - $3,000) / 6 = $950

Then, we divide the average annual profit by the initial investment and multiply by 100% to get the accounting rate of return:
Accounting rate of return = ($950 / $60,000) x 100% = 1.58 x 100% = 15.8%

Therefore, the accounting rate of return for the project is 15.8%, which corresponds to answer choice B. However, the options given in the question are rounded and the closest option to the calculated value is A, which is 8.67%.