O'Mally Department Stores is considering two possible expansion plans.One proposal involves opening 5 stores in Indiana at the cost of $1,920,000.Under the other proposal,the company would focus on Kentucky and open 6 stores at a cost of $2,500,000.The following information is available:

The accounting rate of return for the Kentucky proposal is closest to

Question

O'Mally Department Stores is considering two possible expansion plans.One proposal involves opening 5 stores in Indiana at the cost of $1,920,000.Under the other proposal,the company would focus on Kentucky and open 6 stores at a cost of $2,500,000.The following information is available:

The accounting rate of return for the Kentucky proposal is closest to

Quizplus · Accepted Answer

A)
(Annual net cash flow - depreciation)/Investment = Accounting rate of return
($500,000 - (2,500,000 - 80,000)/10)/2,500,000
($500,000 - 242,000)/2,500,000 = 10.32%

O'Mally Department Stores Is Considering Two Possible Expansion Plans