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24 September, 13:59

An investment of $10,000 provides average net cash flows of $500 with zero salvage value. Depreciation is $15 per year. Calculate the accounting rate of return using the original investment. (Note: Round the answer to two decimal places.)

a. 5.19%

b. 3.41%

c. 4.85%

d. 6.47%

e. 3.29%

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Answers (1)
  1. 24 September, 14:22
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    option (c) 4.85%

    Explanation:

    Data provided in the question:

    Average net cash flows = $500

    Salvage value = 0

    Depreciation = $15 per year

    Original Investment = $10,000

    Now,

    Accounting rate of return

    = [ Net cash flow - Depreciation] : (Original Investment)

    = [ $500 - $15 ] : $10,000

    = 0.0485

    or

    = 0.0485 * 100%

    = 4.85%

    Hence,

    the answer is option (c) 4.85%
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