Chapter 12, Problem 12.5DI

To determine

The annual rate of return method:

The annual rate of return is the amount of income which is earned over the life of the investment. It is used to measure the annual income as a percent of the annual investment of the business, and it is also known as the accounting rate of return.

The annual rate of return is computed as follows:

$\text{Average rate of return =}\frac{\text{Estimated average annual net income}}{\text{Average investment}}$

To compute: The annual rate of return for the given data.