GlenGary Investment Corporation is analyzing a proposal to build condo units in southern Florida.The project will require an initial investment of $500,000.The building has a useful life of 20 years,a residual value of $200,000,and is depreciated on a straight-line basis.GlenGary uses the accounting rate of return model to evaluate investment projects.What is the minimum annual operating income that must be generated by this project to achieve the 9% accounting return required by GlenGary?

Question

Quizplus · Accepted Answer

B)
(Annual net cash flow - depreciation)/Investment = Accounting rate of return
Annual net cash flow/500,000 = 9%
Annual net cash flow = 9% × 500,000 = 45,000.

GlenGary Investment Corporation Is Analyzing a Proposal to Build Condo