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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Average rate of return

The following data are accumulated by McDermott Motors Inc. evaluating two competingcapital investment proposals:

Determine the expected average rate of return for each proposal.

To determine

Concept Introduction:

ARR:

Accounting Rate of Return (ARR) is the rate of return earned on the investment made in a project. ARR is calculated by dividing the Average Accounting profits by Average Investment.

The formula to calculate ARR is as follows:

  ARR= Average Accounting profitsAverage Investment

To Calculate:

The Average Rate of return for each project

Explanation

The Average Rate of return for each project is calculated as follows:

    ...
    Testing Equipment Diagnostic Software
    Expected Total Income (A) $ 244,800 $ 85,250
    Number of years (B)8

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