**Average Rate of Return**The following data are accumulated by Watershed Inc. in evaluating two competing capital investment proposals:| | Project A | Project Z ||--------------------------------|-----------|-----------|| Amount of investment | $80,000 | $92,000 || Useful life | 4 years | 7 years || Estimated residual value | 0 | 0 || Estimated total income over the useful life | $8,800 | $27,370 |Determine the expected average rate of return for each project. Round your answers to one decimal place.- Project A: [____] %- Project Z: [____] %

It is also known by the name of the accounting rate of return. We can evaluate by dividing net income by average investment. We can measure the profitability of our investment with the help of the accounting rate of return.The average rate of return = Average net Incom / Average investmnet For Project A Average net income = 8,800 / 4 = 1,100 Average investment = ( Investment + Salvage value ) / 2 = ( 80,000 + 0 ) / 2 = 40,000 Average rate of return = 1,100 / 40,000 * 100 = 2.75% For Project B Average net income = 27,370 / 7 = 3,910 Average investment = ( Investment + Salvage value ) / 2 = ( 92,000 + 0) / 2 = 46,000 Average rate of return = 3,910 / 46,000 = 8.5%

Business

Accounting

The following data are accumulated by Watershed Inc. in evaluating two competing capital nvestment proposals: Project A Project z Amount of investment Useful life $80,000 $92,000 4 years 7 years Estimated residual value Estimated total income over the useful life $8,800 $27,370 Determine the expected average rate of return for each project. Round your answers to one decimal place. Project A Project Z

The following data are accumulated by Watershed Inc. in evaluating two competing capital nvestment proposals: Project A Project z Amount of investment Useful life $80,000 $92,000 4 years 7 years Estimated residual value Estimated total income over the useful life $8,800 $27,370 Determine the expected average rate of return for each project. Round your answers to one decimal place. Project A Project Z

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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