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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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An investment of $2,000 provides an average net income of $400. Depreciation is $40 per year with zero salvage value. The ARR using the original investment is

  1. a. 44%.
  2. b. 22%.
  3. c. 20%.
  4. d. 40%.
  5. e. None of these.

To determine

Identify ARR using the original investment when investment is of $2,000 and average net income from it is $400.

Explanation

Accounting rate of return:

A method that measures returns from an investment in terms of income instead of cash flow is known as accounting rate of return. It is a non-discounting model of capital investment decision.

Use the following formula to calculate accounting rate of return (ARR):

ARR=AverageincomeInitial<

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