Below are two potential investment alternatives:
Assume straight-line amortization in all computations, and ignore income taxes.
-The accounting rate of return based on INITIAL investment in case Y is
A) 11.11 percent.
B) 44.44 percent.
C) 33.33 percent.
D) 22.22 percent.

Question

Below are two potential investment alternatives:
  Assume straight-line amortization in all computations, and ignore income taxes.
-The accounting rate of return based on INITIAL investment in case Y is
A) 11.11 percent. 
B) 44.44 percent. 
C) 33.33 percent. 
D) 22.22 percent.

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average annual net income by the initial investment. In this case, the average annual net income is $4,000 and the initial investment is $36,000. Therefore, the accounting rate of return is $4,000/$36,000 = 11.11%.

Below Are Two Potential Investment Alternatives