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 Indiana 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 Indiana proposal is closest to

Quizplus · Accepted Answer

B)
(Annual net cash flow - depreciation)/Investment = Accounting rate of return
($400,000 - (1,920,000 - 50,000)/10)/1,920,000
($400,000 - 187,000)/1,920,000 = 11.09375%

O'Mally Department Stores Is Considering Two Possible Expansion Plans