What Is the Accounting Rate of Return for a Project

question 16

Multiple Choice

What is the accounting rate of return for a project that requires an initial outlay of $15 000 and has the expectation of future earnings of $4000 p.a.for the next five years? Assume the required rate of return is 8% p.a.

• A)1.333
• B)$970.80
• C)1.0647
• D)1.564

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Definitions:

Marginal Tax Bracket

The tax rate applicable to the last unit of currency earned, influencing financial decisions by showing the additional tax cost or benefit of income changes.

Municipal Bond

A debt security issued by a state, municipality, or county to finance its capital expenditures, usually tax-exempt from federal taxes and sometimes from state taxes.

Corporate Bond

A debt security issued by a corporation to raise funding, promising to pay back the principal amount along with interest.

Marginal Tax Rate

The marginal tax rate is the rate at which your last dollar of income is taxed, essentially the rate applied to your next dollar of taxable income.