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Suppose francine duckelberg’s sweets is considering investing in warehouse management software $550000, has $75000, residential value...

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?
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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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