Question

Question 55 5 points Save Answer You're trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $12 million, which will be depreciated straight- line to zero over its four-year life. If the plant has projected net income of $1,856,400, $1,909,700, 91,878.100, and $1,331,600 over these four years, what is the project's average accounting return (AAR)? (Do not round your intermediate calculations. Round the final answer to 2 decimal places. Omit % sign in your response.)

Answer 1

average accounting return = average net income x100/average investment

average accounting return = $1743950 x 100/$6000000 = 29.0658 or 29.07%

Average net income = Total net income over Investment Period / Number of Years

average net income = ($1856400 + $1909700 + $1878100 + $1331600)/4 = $6975800/4 = $1743950

Average Investment = (Book Value at Year 1 + Book Value at End of Useful Life) / 2

average investment = ($12000000 + $0)/2 = $6000000

average accounting return

29.07

note : net income is given for four years so net income is calculated after deducting depreciation on plant. no need to deduct depreciation from given net income.

thank you

please giveyour feed back and rating