Randy Ritchie Is Considering Investing $20,000 in a Project with the Following

question 99

Multiple Choice

Randy Ritchie is considering investing $20,000 in a project with the following annual cash revenues and expenses: $\begin{array}{rll}&\text { Cash } & \text { Cash } \\&\text { Revenues } & \text { Expenses }\\\text { Year 1 } & \$ 8,000 & \$ 8,000 \\\text { Year 2 } & \$ 12,000 & \$ 8,000 \\\text { Year 3 } & \$ 15,000 & \$ 8,000 \\\text { Year 4 } & \$ 20,000 & \$ 10,000 \\\text { Year 5 } & \$ 20,000 & \$ 10,000\end{array}$ Depreciation will be $4,000 per year. What is the accounting rate of return on the investment?

• A) 10%
• B) 15%
• C) 35%
• D) 75%

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Definitions:

GAAP

Generally Accepted Accounting Principles (GAAP) are a set of accounting standards and principles designed to ensure consistency in financial reporting.

Repetitive Basis

A method or process that is regularly repeated in a consistent manner over time, often used to describe routine transactions or operations.

Deferred Charge

An expenditure paid for in one accounting period but reported as an asset because it will provide benefits in future periods.

Sales Tax

A tax imposed by governments on the sale of goods and services, collected by the retailer at the point of sale.