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

question 147

Multiple Choice

A company is evaluating three possible investments.Each uses the straight-line method of depreciation.The following information is provided by the company: $$\begin{array} { | l | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 240,000 & \$ 54,000 & \$ 240,000 \\\hline \text { Residual value } & 0 & 10,000 & 36,000 \\\hline \text { Net cash inflows: } & & & \\\hline \text { Year 1 } & 52,000 & 40,000 & 96,000 \\\hline \text { Year 2 } & 52,000 & 31,000 & 66,000 \\\hline \text { Year 3 } & 52,000 & 27,000 & 76,000 \\\hline \text { Year 4 } & 52,000 & 24,000 & 36,000 \\\hline \text { Year 5 } & 52,000 & 0 & 0 \\\hline\end{array}$$ What is the accounting rate of return for Project C? (Round your answer to two decimal places.)

• A) 12.50%
• B) 12.68%
• C) 44.44%
• D) 15.00%

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Definitions:

Total Revenue Curve

A graphical representation showing how a firm’s total revenue changes with variations in the quantity of product sold.

Linear

A relationship or function that can be graphically represented in two dimensions as a straight line, implying a constant rate of change.

Profit Maximizing

The procedure by which a company figures out the ideal price and level of production for maximizing earnings.

Total Revenue

Total revenue refers to the overall amount of money generated by a business from its sales activities before any expenses are subtracted.