Mark is considering investing $90,000 in a project with the following cash revenues and expenses:

What is the accounting rate of return for the project?

Question

Mark is considering investing $90,000 in a project with the following cash revenues and expenses:  
 
 What is the accounting rate of return for the project?

Quizplus · Accepted Answer

Average net income = (Year 1 Net Income + Year 2 Net Income + Year 3 Net Income + Year 4 Net Income + Year 5 Net Income) / Number of years of project
Net income = Net cash flow - Depreciation expense
= [($20,000 - $15,000) + ($25,000 - $20,000) + ($18,000 - $15,000) + ($30,000 - $10,000) + ($40,000 - $10,000)] / 5 = $12,600
Accounting Rate of Return = Average Income / Initial Investment
= $12,600 / $90,000 = 14%

Mark Is Considering Investing $90,000 in a Project with the Following