Question

Q1: What is the accounting rate of return for a project that is estimated to yield total income of $333,000 over three years and costs $865,000? (Round your answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

Accounting Rate of Return

Q2: Citrus Company is considering a project that has estimated annual net cash flows of $21,300 for six years and is estimated to cost $100,000. Citrus’s cost of capital is 8 percent.

Answer 1

Answer-1)- The project's accounting rate of return on the initial investment is =12.83%.

Explanation- Accounting rate of return for the initial investment= 15%

Explanation= Accounting rate of return= (Annual net income/ Initial investment)*100

= ($111000/($865000)*100

= 12.83%

Answer- Net present value = ($1530.10).

Explanation-Net present value = Present value of cash inflows – Total outflows

= ($21300*4.623)-$100000

= $98469.9-$100000

= ($1530.10)

The project is not acceptable to Citrus due to negative net present value.