A project has an initial cost of $32,000 and a 3-year life. the company uses straight-line depreciation to a book value of zero over the life of the project. the projected net income from the project is $1,200, $2,300, and $1,800 a year for the next 3 years, respectively. what is the average accounting return?

Question

Amy Curtis

Business

9 May, 20:35

A project has an initial cost of $32,000 and a 3-year life. the company uses straight-line depreciation to a book value of zero over the life of the project. the projected net income from the project is $1,200, $2,300, and $1,800 a year for the next 3 years, respectively. what is the average accounting return?

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Ayden Briggs · Answer 1

Total profit = 1200 plus 2300 plus 1800

average profit = total profit divided by 3

average accounting return = average profit divided by initial investment = 5.52 percent

thats one way

other way is to take average investment = (intial investment plus scrap value) divided by 2