A Company Is Evaluating Three Possible Investments What Is the Accounting Rate of Return for Project B

question 8

Multiple Choice

A company is evaluating three possible investments.Each uses the straight-line method of depreciation.Following information is provided by the company: $$\begin{array} { | l | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 230,000 & \$ 54,000 & \$ 230,000 \\\hline \text { Residual value } & 0 & 12,000 & 36,000 \\\hline \text { Net cash inflows: } & & & \\\hline \text { Year 1 } & 56,000 & 38,000 & 94,000 \\\hline \text { Year 2 } & 56,000 & 29,000 & 64,000 \\\hline \text { Year 3 } & 56,000 & 25,000 & 74,000 \\\hline \text { Year 4 } & 56,000 & 22,000 & 34,000 \\\hline \text { Year 5 } & 56,000 & 0 & 0 \\\hline\end{array}$$ What is the accounting rate of return for Project B? (Round your answer to two decimal places.)

• A) 38.14%
• B) 26.19%
• C) 54.55%
• D) 51.83%

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Definitions:

Protruding

Extending out or projecting in space.

Punitive Damages

Financial compensation awarded in a lawsuit that exceeds simple compensation and is intended to punish the defendant for egregious conduct.

Product Liability

The legal obligation of manufacturers and sellers to compensate for losses or injuries caused by defects or malfunctions of their products.

Implied Warranties

Legal assurances that are not explicitly stated but are assumed in transactions, such as the assumption that goods are of merchantable quality.