You\'re trying to deternsine whether or not to expand your business by building

Question

You're trying to deternsine whether or not to expand your business by building a new manufacturing plant. Thee plant has an instalation oost of $20 2 mition, which will be depreciated straight-line to zero over its four- year ide. Ir the plant has projected net income of $1,895,000, $2.185,000, $2.114,000, and $1.366,000 over these four years, what is the project's avenage aocounting return (AAR)? (Do not round intermediate calculations and enter your anawer as a percent rounded to 2 decimal places, .g, 32.16 Average accounting return

Explanation / Answer

Average accounting return (AAR) = Average net income / Investment

Average net income = (1,895,000 + 2,185,000 + 2,114,000 + 1,366,000) / 4 = 1,890,000

=> AAR = 1,890,000 / 20,200,000 = 9.36%

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