Osler Company is considering an investment with the following data:

Depreciation will be taken on a straight-line basis over the expected life of the investment.
-
What is the accounting rate of return for the investment?

Question

Osler Company is considering an investment with the following data:  
 
 Depreciation will be taken on a straight-line basis over the expected life of the investment.
-
What is the accounting rate of return for the investment?

Quizplus · Accepted Answer

Depreciation = $200,000 / 10 years = $20,000/year
Average annual income = $25,000 - $20,000 = $5,000
ARR = $5,000 / $200,000 = 0.025 or 2.5%

Osler Company Is Considering an Investment with the Following Data