A plant asset of $180,000 is expected to generate $80,000 in operating cash savings (excluding depreciation expense)annually for three years.Assume straight-line depreciation is used.The useful life is 3 years.The asset has no expected residual value.Ignore income taxes.The accounting rate of return based on the initial investment is ________.
A) 11.11%
B) 16.67%
C) 33.33%
D) 44.44%

Question

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the average annual operating cash savings by the initial investment. In this case, the average annual operating cash savings is $80,000 and the initial investment is $180,000. Therefore, the accounting rate of return is $80,000/$180,000 = 11.11%.

A Plant Asset of $180,000 Is Expected to Generate $80,000