An investment has an initial cost of $3.2 million. This investment will be depreciated by $900,000...

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An investment has an initial cost of $3.2 million. Thisinvestment will be depreciated by $900,000 a year over the 3-yearlife of the project. Should this project be accepted based on theaverage accounting rate of return (AAR) if the required rate is10.5 percent? Why or why not?
years----------------net income
1------------------------ 211700
2 -----------------------186400
3---------------------- 165500

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3.8 Ratings (435 Votes)

Solution The Average accounting return is calculated using the formula Average Net Income Average Investment Calculation of Average Net Income As per the Information given in the question we have Net Income Year 1 211700 Net Income Year 2 186400 Net Income Year 3 165500 No of years 3 Thus See Answer

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An investment has an initial cost of $3.2 million. Thisinvestment will be depreciated by $900,000 a year over the 3-yearlife of the project. Should this project be accepted based on theaverage accounting rate of return (AAR) if the required rate is10.5 percent? Why or why not?years----------------net income1------------------------ 2117002 -----------------------1864003---------------------- 165500