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The following information relates to two capital investment projects - Project A and Project B: Initial investment of both projects = $400,000 Useful life = 4 years Estimate cost of capital = 16% Scrap value of both projects = $0 Straight-line method of depreciation is used   The estimated net profits of Project A over its useful life: Year Amount 1 $70,000 2 $50,000 3 $100,000 4 $30,000   Project B is expected to generate net cash flows of $140,000 per year over the four year period.   Calculate accounting rate of return on average investment of project A

The following information relates to two capital investment projects - Project A and Project B: Initial investment of both projects = $400,000 Useful life = 4 years Estimate cost of capital = 16% Scrap value of both projects = $0 Straight-line method of depreciation is used   The estimated net profits of Project A over its useful life: Year Amount 1 $70,000 2 $50,000 3 $100,000 4 $30,000   Project B is expected to generate net cash flows of $140,000 per year over the four year period.   Calculate accounting rate of return on average investment of project A

Essentials Of Investments
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
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The following information relates to two capital investment projects - Project A and Project B:

Initial investment of both projects = $400,000

Useful life = 4 years

Estimate cost of capital = 16%

Scrap value of both projects = $0

Straight-line method of depreciation is used

 

The estimated net profits of Project A over its useful life:

Year Amount
1 $70,000
2 $50,000
3 $100,000
4 $30,000

 

Project B is expected to generate net cash flows of $140,000 per year over the four year period.

 

Calculate accounting rate of return on average investment of project A

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