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You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $23.4 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $2,055,000, $2,265,000, $2,274,000, and $1,446,000 over these four years, what is the project's average accounting return (AAR)?

Answer :

Tundexi

Answer:

17.18%

Step-by-step explanation:

Average rate of return or Accounting Rate of return  =  Average net Income / Average Investment * 100

Average net income = (2,055,000 + 2,265,000 + 2,274000 + 1,446000) / 4 = 2,010,000

Average Investment = Installation cost / 2 = 23,400,000 / 2 = 11,700,000

Average rate of return = 2010000/11700000 * 100

Average rate of return = 0.171795 * 100

Average rate of return = 17.18%

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