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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

Management is considering a $100,000 investmentin a project with a five-year life and no residualvalue. If the total income from the project is expected to be $60,000 and recognition is givento the effect of straight-line depreciation on theinvestment, the average rate of return is:

A. 12%

B. 24%

C. 60%

D. 75%

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

Explanation

The Average Rate of Return is calculated as follows:

    Expected Total Income (A) $ 60,000
    Number of years (B)5

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