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What is the accounting rate of return using the average investment?

What is the accounting rate of return using the average investment?

FINANCIAL ACCOUNTING
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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15 Walters Ltd is considering replacing a packaging machine. The cost on 1.1.2023 will be £4.5m. The expected economic life of the machine will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £400,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £1,650,000 in each of years 1 and 2 and £1,800,000 in each of years 3 and 4. You can assume that all cash flows occur on the final day of the year to which they relate, unless otherwise stated. What is the accounting rate of return using the average investment? Select one answer: 33.3% 28.6% O 12.5% O 15.0%
Transcribed Image Text:15 Walters Ltd is considering replacing a packaging machine. The cost on 1.1.2023 will be £4.5m. The expected economic life of the machine will be 4 years. The company depreciates its equipment using the straight-line methods. The company expects to sell this equipment for £400,000, after the end of its useful economic life. There are expected cost savings arising from this investment of £1,650,000 in each of years 1 and 2 and £1,800,000 in each of years 3 and 4. You can assume that all cash flows occur on the final day of the year to which they relate, unless otherwise stated. What is the accounting rate of return using the average investment? Select one answer: 33.3% 28.6% O 12.5% O 15.0%
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