Martin Is Analyzing a Project and Has Gathered the Following

question 95

Multiple Choice

Martin is analyzing a project and has gathered the following data.Based on this data,what is the average accounting rate of return? The firm depreciates it assets using straight-line depreciation to a zero book value over the life of the asset.
$\begin{array}{|l|l|l|}\hline \text { Year } & \text { Cash Flow } & \text { Net Income } \\\hline 0 & -£ 642,000 & \mathrm{n} / \text { a } \\\hline 1 & £ 170,000 & £ 9,500 \\\hline 2 & £ 240,000 & £ 79,500 \\\hline 3 & £ 205,000 & £ 44,500 \\\hline 4 & £ 195,000 & £ 34,500 \\\hline\end{array}$

• A)13.08%
• B)15.77%
• C)21.83%
• D)26.17%
• E)31.54%

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Definitions:

Fast-growth Businesses

Companies that experience significantly higher than average rates of growth in revenue, size, or market share over a short period.

Outside Investors

Individuals or entities that invest capital into a business or project in which they do not have an active management role.

Profitable

Generating more revenue than the expenses incurred, resulting in a financial gain for the business.

Good Investment

An asset or item that is purchased with the hope that it will generate income or appreciate in the future.