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A company is considering a project. The project requires new machinery at a cost of £140,000 which is expected to have a resale value of £40,000 at the end. Depreciation of £20,000 is to be charged each year. The expected cash flows from the project are as follows: Year 1                          (£12,890) Year 2                           £26,500 Year 3                            £39,750 Year 4                            £78,231 Year 5                            £68,090 The above cash flows are also considered to be representative of profit before depreciation. What is the accounting rate of return of the project (using average investment)?

A company is considering a project. The project requires new machinery at a cost of £140,000 which is expected to have a resale value of £40,000 at the end. Depreciation of £20,000 is to be charged each year. The expected cash flows from the project are as follows: Year 1                          (£12,890) Year 2                           £26,500 Year 3                            £39,750 Year 4                            £78,231 Year 5                            £68,090 The above cash flows are also considered to be representative of profit before depreciation. What is the accounting rate of return of the project (using average investment)?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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A company is considering a project. The project requires new machinery at a cost of £140,000 which is expected to have a resale value of £40,000 at the end. Depreciation of £20,000 is to be charged each year. The expected cash flows from the project are as follows:

Year 1                          (£12,890)

Year 2                           £26,500

Year 3                            £39,750

Year 4                            £78,231

Year 5                            £68,090

The above cash flows are also considered to be representative of profit before depreciation. What is the accounting rate of return of the project (using average investment)?

a. 81%

b. 45%

c. 59%

d. 22%

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