Asked by Maryam Almamlouk on Jun 03, 2024
Verified
Assuming that net cash flows are received evenly throughout the year,the accounting rate of return is (ignore income taxes) :
A) 62.3%.
B) 32.0%.
C) 15.0%.
D) 7.7%.
E) 5.0%.
Accounting Rate
Accounting rate, often referred to as the rate of return, measures the profitability of investments or projects expressed as a percentage.
Net Cash Flows
The total amount of cash being transferred into and out of a business, reflecting the company's overall financial health over a specific period.
- Acquire knowledge on the methodology and significance of determining the accounting rate of return (ARR) for investments in capital.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
C
Explanation :
The accounting rate of return is calculated by dividing the average annual net income by the initial investment. Using the information given in the problem, the initial investment is $780,000 and the average annual net income is $117,000 ($936,000/8). Therefore, the accounting rate of return is ($117,000/$780,000) x 100 = 15%. Option C is the correct answer.
Learning Objectives
- Acquire knowledge on the methodology and significance of determining the accounting rate of return (ARR) for investments in capital.