Answered: What is the Accounting Rate of Return…

Business

Accounting

What is the Accounting Rate of Return (ARR)?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 9P

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Question

Light company Intends to introduce a soft drink in the market in the next year. The projected revenues and expenses for the next five years are as follows:

Year 1 2 3 4

Revenues 300M 200M 315M 420M

Expenses 160M 50M 115M 200M

The initial capital outlay is 500M which will be depreciated over the four-year period. The prevailing tax rate is 30%. What is the Accounting Rate of Return (ARR)?

Select one:

A. 14.7%

B.21%

C.25.5%

D.None of the above

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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