Columbia Comp. invests RM 270,000 in a project that is depreciated on a straight-line basis over three years to zero disposal value. The relevant details for the project over its 3-year life are shown below.2 Calculate the accounting rate of return for the project. Year 1Year 2Year 3Sales RM 220,000RM 190,000RM 200,000Cash expenses50,00040,00060,000Depreciation90,00090,00090,000Earnings before taxes80,00060,00050,000Taxes @ 30%24,00018,00015,000Operating income after taxes56,00042,00035,000

Accounting rate of return = Average annual profit / Average investment

Answered: Columbia Comp. invests RM 270,000 in a…

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 22E

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Columbia Comp. invests RM 270,000 in a project that is depreciated on a straight-line basis over three years to zero disposal value. The relevant details for the project over its 3-year life are shown below.

Calculate the accounting rate of return for the project.

	Year 1	Year 2	Year 3
Sales	RM 220,000	RM 190,000	RM 200,000
Cash expenses	50,000	40,000	60,000
Depreciation	90,000	90,000	90,000
Earnings before taxes	80,000	60,000	50,000
Taxes @ 30%	24,000	18,000	15,000
Operating income after taxes	56,000	42,000	35,000

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