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2 years ago

Average Rate of Return

Business

1 answer:

Natali [406]2 years ago

8 0

Answer:

22%

Explanation:

The formula to compute the accounting rate of return is shown below:

= Average net income ÷ average investment

where,

Average net income is

= Total income ÷ number of years

= $148,500 ÷ 5 years

= $29,700

And, the average investment would be

= (Cost - salvage value) ÷ 2

= ($300,000 - $30,000) ÷ 2

= $270,000 ÷ 2

= $135,000

Now put these values to the above formula

So, the rate would equal to

= $29,700 ÷ $135,000

= 22%

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Part a:

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