Question

Suppose francine duckelberg’s sweets is considering investing in
warehouse management software $550000, has $75000, residential
value and should lead to cost savings of $130000 per year for its
five year life. What is the accounting rate of return?

Answer #1

Accounting rate of return is the ratio of estimated accounting profit of a project to the average investment made in the project. | ||||||||||||

APR = Average accounting profit / Average Investment | ||||||||||||

Annual Depreciation = (Initial Investment ? Scrap Value) ÷ Useful Life in Years | ||||||||||||

Annual Depreciation = ($550000 ? $75000) ÷ 5 Years = $95,000 | ||||||||||||

Average accounting income = Yearly cost savings - depreciation = $130000 - $95000 = $35,000 | ||||||||||||

APR = Average accounting profit / Average Investment =
$35000 / $550000 = 6.36% |

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