Asked by London Aldridge on Jun 18, 2024
Verified
Assuming that straight line depreciation is used, the average accounting return for a project is computed as the average:
A) Net income of a project divided by the average total assets of a firm.
B) Book value of a project multiplied by the average profit margin of the project.
C) Book value of a project divided by the average net income of the project.
D) Net income of a project divided by the average investment in the project.
E) Net income of the firm divided by the average investment in a project.
Average Accounting Return
A measure of the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.
Average Total Assets
The mean value of all assets owned by a company over a specific period, used in financial analysis to gauge the company's asset use efficiency.
- Acknowledge the confines and purposes of the Average Accounting Return (AAR) in investment determinations.
Verified Answer
EK
Eureka KennedyJun 22, 2024
Final Answer :
D
Explanation :
The average accounting return (AAR) is calculated as the average net income of a project divided by the average investment in the project. This method provides a simple way to estimate the profitability of a project by comparing the average annual profit to the average amount invested.
Learning Objectives
- Acknowledge the confines and purposes of the Average Accounting Return (AAR) in investment determinations.