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Calculator Osler Company is considering an investment with the following data: Initial cost $200,000 Annual net cash inflows $25,000 Expected life 10 years Salvage value none Depreciation will be taken on a straight-line basis over the expected life of the investment. What is the accounting rate of return for the investment?

a.20%
b.25%
c.10%
d.12.5%
e.2.5%

Respuesta :

beritop1089

Answer:

e.2.5%

Explanation:

Accounting rate of return; ARR = [Average net cashflows/ initial investment] *100

Average net cashflows = $25,000 - depreciation per year

depreciation = (initial cost - salvage) useful life = ($200,000-0)/10 = $20,000

Therefore, Average net cashflows = $25,000 - $20,000 = $5,000

Initial investment = $200,000

ARR = (5,000 / 200,000) *100

ARR = 0.025 *100

ARR  =2.5%

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