Two accounting rates of return Ketterling Company is planning to buy a building to use as a store. The cost of the building is $355,000. The building has an estimated life of 20 years and a salvage value of $20,000. Of the purchase price, $15,000 is allocated to the land and the remainder to the building. The company plans to use straight-line depreciation. Annual revenue from the building is expected to be $200,000 and operating expenses are estimated at $125,000, not including depreciation.

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REQUIRED a. Compute the accounting rate of return using actual cost as a base. b. Compute the accounting rate of return using average investment as the base.