Information for two alternative projects involving machinery investments follow. The accounting rate of return for Project 1 is:

 Information for two alternative projects involving machinery investments follow. The accounting rate of return for Project 1 is:
 

Year                               Project 1    Project 2
Initial investment    $ (270,000)    $ (210,000)
Salvage value                         0    23,000
Annual income               27,000    27,000
Multiple Choice

11.7%.


10.0%.


20.0%. Correct

23.5%.


25.7%.

Explanation
ARR = ($27,000/($270,000 + $0)/2) = 20.0%