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Q.ABC ltd is considering a new project for which the following information is available,
Intial investment: 300000
Expected life: 5 yrs
Scrap value: 20000
Addition in revenue: 120000 per year
Incremental cost: 30000 per yearCost of capiltal 10%
Calculate the Accounting rate of return of the project?
Can you plz help me sir to solve this question
(300000-20000) =280000/5 =56000+30000 =860000
Incremental net opreting income= 120000-86000 so, ARR =34000/300000 =11.33%
Sorry but samir is wrong.
The average investment on the Statement of financial position (Balance Sheet) is (300,000 + 20,000) / 2 = 160,000
The net operating income is 120,000 – 30,000 – 56,000 = 34,000.
Do the ARR is 34,000/160,000 = 21.25%
Yes of course!
It is part of the investment appraisal (capital budgeting) section of the syllabus, which is why it is included in our Course Notes and lectures.
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