Question

The Patches Group has invested $39,000 in a high-tech project lasting three years. Depreciation is $13,300, $16,500, and $9,200 in Years 1, 2, and 3, respectively. The project generates pretax income of $4,310 each year. The pretax income already includes the depreciation expense. The tax rate is 35 percent. What is the project's average accounting return (AAR)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) AAR %

Answer 1

Average Accounting rate=Average net income/Average investment Average net income 4310*0.65 Average investment 39000/2 Average Accounting rate 2801.5/19500 2801.5 19500 14.37%