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

question 60

Multiple Choice

A company is evaluating three possible investments. Each uses straight-line method of depreciation. Following information is provided by the company. $$\begin{array} { | l | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 200,000 & \$ 50,000 & \$ 200,000 \\\hline \text { Salvage value } & 0 & 5,000 & 10,000 \\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & 50,000 & 25,000 & 80,000 \\\hline \text { Year 2 } & 50,000 & 16,000 & 50,000 \\\hline \text { Year 3 } & 50,000 & 12,000 & 60,000 \\\hline \text { Year 4 } & 50,000 & 9,000 & 20,000 \\\hline \text { Year 5 } & 50,000 & & 0 \\\hline\end{array}$$
-What is the accounting rate of return for Project B?

• A) 15.08%
• B) 10.214%
• C) 15.45%
• D) 14.54%

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Definitions:

Placebo

A substance or treatment with no therapeutic effect, often used in clinical trials as a control to test the efficacy of treatments.

Confounding Variable

An external variable that influences both the independent and dependent variables in an experimental design, leading to a potential false association between the studied variables.

Random Factor

A random factor is an unpredictable variable that can influence the outcome of an experiment or situation, often beyond control.

Dependent Variable

In research, the variable being tested and measured, expected to be influenced by another variable known as the independent variable.