Question

Weston's uses stralght-line depreclation to zero over a project's life. A new project has a fixed asset cost of $2,687,300 and projected annual net Income of $95,000, $162,000, $286,000, and $304,000 over Years 1 to 4. What is the average accounting return?
A) 14.35 percent
B) 15.63 percent
C) 14.87 percent
D) 15.76 percent
E) 6.05 percent

Answer 1

Answer:

D) 15.76 percent

Explanation:

First, sum up the expected cash inflows;

= (95,000 + 162,000 + 286,000 + 304,000)

= 847,000

Next, find average cash inflows by dividing 847,000 by 4 years;

= 847,000/4

= 211,750

Initial amount invested = 2,687,300

Find the average amount by dividing 2,687,300 by 2

= 2,687,300/2

= 1,343,650

To find average accounting return, divide 211,750 by 1,343,650;

= 211,750 / 1,343,650

= 0.15759

As a percentage, it becomes 15.76%