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Calculate the accounting rate of return for this project

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Reference no: EM132996737

Question - Taomi Ltd, a competitor of Kievon Ltd, also intends to venture into the hair straightening dryer market. They have estimated the initial investment to be similar to Kievon's $4 million, and installation cost would be an additional $150 000.

Taomi has estimated the annual net profits (after tax) as follows:

Year (t)

1

2

3

4

5

Net Pro?t

900,000

1,800,000

2,000,000

2,000,000

1,500,000

Required -

(a) Calculate the Accounting Rate of Return for this project.

(b) Discuss one advantage the ARR method has over the other investment appraisal methods from a shareholder's point of view.

Reference no: EM132996737

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