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Delta Mu Delta is considering purchasing some new equipment costing $400,000. The equipment will be depreciated...

Delta Mu Delta is considering purchasing some new equipment costing $400,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. Projected net income for the four years is $18,900, $21,300, $26,700, and $25,000. What is the average accounting rate of return?

It is one of the following:

11.49 percent

11.63 percent

12.01 percent

12.49 percent

13.20 percent

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Answer #1

Hi,

Please find the detailed answer as follows;

Average Accounting Rate of Return = Average Net Income/Average Investment = (18900 + 21300 + 26700 + 25000)/4/400000/2 = 11.49%

Option A (11.49%) is the correct answer.

Thanks.

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