The Silverside Company is considering investing in two alternative projects: What is the accounting rate of return for Project 1?

Question

The Silverside Company is considering investing in two alternative projects:  What is the accounting rate of return for Project 1?

Quizplus · Accepted Answer

The accounting rate of return for Project 1 is (40,000/3 years)/(160,000/2) = 10.33%. Project 2 has a lower accounting rate of return of (50,000/4 years)/(200,000/2) = 6.25%. Therefore, Project 1 is the better choice based on this evaluation criteria. However, it is important to note that the accounting rate of return is not the only factor to consider when making investment decisions.

The Silverside Company Is Considering Investing in Two Alternative Projects