1. ARR = 26.67% |
=1200000/4500000 |
Average Income = Cash Revenues - Cash Expenses = $6,000,000-$4,800,000 |
Average Income = $1,200,000 |
Initial Investment = $4,500,000 |
Accounting Rate of Return = Average Income / Initial Investment |
2.
Income | ||
Year | Project A | Project B |
1 | $ 22,500.00 | $ 22,500.00 |
2 | $ 30,000.00 | $ 30,000.00 |
3 | $ 45,000.00 | $ 45,000.00 |
4 | $ 75,000.00 | $ 22,500.00 |
5 | $ 75,000.00 | $ 22,500.00 |
$ 247,500.00 | $ 142,500.00 |
Project A | Project B | |
Average Income = Total / 5 years | $ 49,500.00 | $ 28,500.00 |
Less: Depreciation | $ 15,000.00 | $ 15,000.00 |
(75000/5) | ||
Average Net Income | $ 34,500.00 | $ 13,500.00 |
Initial Investment | $ 75,000.00 | $ 75,000.00 |
ARR | 46.00% | 18.00% |
= Average Net Income / Initial Investment | =34500/75000 | =13500/75000 |
3.
Accounting Rate of Return = Average Income / Initial Investment |
ARR = 30% |
Average Net Income = $220,000 |
Initial Investment = Average Net Income / ARR |
Initial Investment = $733,333 |
4.
Accounting Rate of Return = Average Income / Initial Investment |
ARR = 50% |
Initial Investment = $175,000 |
Average Net Income =Initial Investment * ARR |
Average Net Income = $87,500 |
Accounting Rate of Retum Each of the following scenarios is independent. Assume that all cash flows are after-tax cash...
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