A project produces annual net income of $9,500,$12,500,and $15,500 over its 3-year life.The initial cost of the project is $210,000.This cost is depreciated straightline to a zero book value over three years.What is the average accounting rate of return if the required discount rate is 12.25 percent?
A)14.80%
B)14.32%
C)23.49%
D)11.90%
E)17.62%

Question

Quizplus · Accepted Answer

Average net income = ($9,500 + 12,500 + 15,500)/3 = $12,500Average book value = ($210,000 + 140,000 + 70,000 + 0)/4 = $105,000AAR = $12,500/$105,000 = .1190,or 11.90%

A Project Produces Annual Net Income of $9,500,$12,500,and $15,500 Over