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A project has an initial cost of $27,000 and a three year life. The company uses...

A project has an initial cost of $27,000 and a three year life. The company uses straight line depreciation to a book value of zero over the life of the project. The project net income from the projects is $1,600, $2,200, and $1,700 a year for the next three years, respectively. What is the average accounting return?

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Expert Solution

Income reported is a net income so there is no need to deduct again depreciation from the net income.
Average income = ( $ 1600 + $ 2,200 + $ 1700 ) / 3 = $                    1,833.33
Investment Amount = $                       27,000
Average Accounting Retrun = Average income / Initial investment
Average Income = $                    1,833.33
Divide By "/"By
Initial investment $                       27,000
Average Accounting Retrun =                         0.06790
Average Accounting Retrun in % 6.79%
Answer = Average accounting return = 6.79%

jeff jeffy answered 2 years ago
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