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Homework answers / question archive / An investment has an initial cost of $300,000 and a life of four years
An investment has an initial cost of $300,000 and a life of four years. This investment will be 100 percent depreciated (straight line) over four years and will generate the net income shown below: Year Net Income ($) 1 24,500 2 22,900 3 26,000 4 28,400 The company has a policy of accepting the investment if the investment has an average accounting return (AAR) of more than 18 percent. Should the company accept this investment?
Average Accounting Return=((24500+22900+26000+28400)/4)/((300000+0)/2)=16.9667%
Do not accept as AAR is less than 18%
