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

question 135

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:

Standardized Validity

The extent to which the results of a test or measurement are consistent and accurate across different populations and settings.

High Reliability

The concept or state of being able to function under high levels of uncertainty or risk without significant failures or accidents.

Content Validity

The extent to which a test measures the entire range of material or behavior that is supposed to be measured.

Low Validity

A term indicating that the effectiveness or correctness of a measurement or test is questionable or lacking.