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

question 21

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:

Self-Regulating Market

A market mechanism in which market forces such as supply and demand are allowed to operate freely without external intervention, theoretically leading to efficient outcomes.

Say's Law

An economic theory that proposes supply creates its own demand, meaning production inherently creates the consumption of equivalent value.

Aggregate Supply Curve

This represents the total supply of goods and services that firms in an economy are willing to sell at a given price level during a specified time period.

Macroeconomic Equilibrium

A state where aggregate supply equals aggregate demand, resulting in a stable economy without tendencies to change.