A project has an initial cost of 60000 and a fouryear life T

A project has an initial cost of $60,000 and a four-year life. The company uses straight-line depreciation to a book value of zero over the life of the project. The projected net income from the project is $2,300, $2,000, $2,400, and $4,500 a year for the next four years, respectively. What is the average accounting return?

Solution

Hi,

Please find the detailed answer as follows:

Average Income = (2300 + 2000 + 2400 + 4500)/4 = 2800

Average Investment = 60000/2 = 30000

Average Accounting Return = Average Income/Average Investment*100 = 2800/30000*100 = 9.33%

Answer is 9.33%

Thanks.