A company is considering a project. The project requires new machinery at a cost of £140,000 which is expected to have a resale value of £40,000 at the end. Depreciation of £20,000 is to be charged each year. The expected cash flows from the project are as follows: Year 1 (£12,890) Year 2 £26,500 Year 3 £39,750 Year 4 £78,231 Year 5 £68,090 The above cash flows are also considered to be representative of profit before depreciation. What is the accounting rate of return of the project (using average investment)?
A company is considering a project. The project requires new machinery at a cost of £140,000 which is expected to have a resale value of £40,000 at the end. Depreciation of £20,000 is to be charged each year. The expected cash flows from the project are as follows: Year 1 (£12,890) Year 2 £26,500 Year 3 £39,750 Year 4 £78,231 Year 5 £68,090 The above cash flows are also considered to be representative of profit before depreciation. What is the accounting rate of return of the project (using average investment)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company is considering a project. The project requires new machinery at a cost of £140,000 which is expected to have a resale value of £40,000 at the end.
Year 1 (£12,890)
Year 2 £26,500
Year 3 £39,750
Year 4 £78,231
Year 5 £68,090
The above cash flows are also considered to be representative of profit before depreciation. What is the accounting
a. 81%
b. 45%
c. 59%
d. 22%
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