Accounting Rate of Return Vanderhoort Company invested $9,960,000 in a new product line. The life cycle...
Accounting Rate of Return
Vanderhoort Company invested $9,960,000 in a new product line. The life cycle of the product is projected to be seven years with the following net income stream: $360,000, $360,000, $600,000, $1,080,000, $1,200,000, $2,520,000, and $1,444,000.
Calculate the ARR. Enter your answer as a decimal, do not convert to a percent. Round your answer to two decimal places.
Homework Answers
ARR = Average Net Income / Initial Investment
Average Net Income = ($360,000+$360,000+$600,000+$1,080,000+$1,200,000+$2,520,000+$1,444,000) / 7
= $7,564,000 / 7 = 1,080,571.43
Therefore, ARR = 1,080,571.43 / $9,960,000 = 0.11
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