# Average rate of return Determine the average rate of return for a project that is estimated to yield total income of $180,000 over five years, ha s a cost of$400,000, and has a $50,000 residual value. BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 #### Solutions Chapter Section Chapter 26, Problem 26.1APE Textbook Problem ## Average rate of returnDetermine the average rate of return for a project that is estimated to yield total income of$180,000 over five years, has a cost of $400,000, and has a$50,000 residual value.

Expert Solution
To determine

Average Rate of Return:

Average rate of return is a method that measures the average earnings of a particular business, as a percentage of the average investment. It is also known as accounting rate of return.

Calculation of Average rate of return:

AverageRateofReturn}=(EstimatedAverageAnnualIncome)(AverageInvestment)×100

To determine: The average rate of return for a project.

### Explanation of Solution

The average rate of return for the project is 16%.

Working Notes:

Calculation of Average Rate of Return:

AverageRateofReturn}=(EstimatedAverageAnnualIncome)(AverageInvestment)×100=($36,000)($225,00)×100=16%

(Refer equation (1) and (2) of the working notes)

Calculation of Average Annual Income:

Average<

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