The Hanna Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated:

The accounting rate of return is closest to

Question

The Hanna Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated:

The accounting rate of return is closest to

Quizplus · Accepted Answer

B)
(Annual net cash flow - depreciation)/Investment = Accounting rate of return
(210,000 + 150,000 + 225,000)- (500,000 - 50,000)/500,000
(585,000 - 450,000)/500,000 = 27.00
Divide by 3 years = 9.00 %

The Hanna Company Uses Straight-Line Depreciation and Is Considering a Capital