What is the accounting rate of return for a project that requires an initial outlay of $15 000 and has the expectation of future earnings of $4000 p.a.for the next five years? Assume the required rate of return is 8% p.a.
A)1.333
B)$970.80
C)1.0647
D)1.564

Question

Quizplus · Accepted Answer

The accounting rate of return (ARR) is calculated as the average annual profit divided by the initial investment. The average annual profit is $4000, and the initial investment is $15000. ARR = $4000 / $15000 = 0.2667 or 26.67%. However, the choices seem to be misrepresented, and the closest to the correct calculation is choice A, which seems to be a miscalculation.

What Is the Accounting Rate of Return for a Project