Question

 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

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