Solution-What the accounting rate of return

What the accounting rate of return

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Question - Management of Red Hot Choice Ltd is considering the following investment project:

Capital Outlay $100,000

Net Profit p.a.(before Depreciation and Tax) $50,000

Depreciation p.a. $20,000

Economic Life 5 years

Salvage Value $nil

Tax Rate payable (paid in year of income) 30%

Required Rate of Return 6%

What the Accounting Rate of Return (using total investment)?

a. 35%

b. 40%

c. 45%

d. 21%

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What the accounting rate of return

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