A project requires a $2,850,000 initial investment for new machinery with a five-year life and a salvage value of $310,000. The project is expected to yield annual income of $211,720 per year and net cash flows of $705,000 per year for the next five years. The project’s accounting rate of return is

 A project requires a $2,850,000 initial investment for new machinery with a five-year life and a salvage value of $310,000. The project is expected to yield annual income of $211,720 per year and net cash flows of $705,000 per year for the next five years. The project’s accounting rate of return is:

Multiple Choice

6.2%.


23.5%.


19.6%.


46.3%.


13.4%. Correct

 
Explanation
ARR = $211,720/[($2,850,000 + $310,000)/2] = 13.4%