Exercise 2-8 Accounting rate ofreturn method

- Comparison ofalternatives A local authority plans to purchase a new climbing wall for a gym used by several sports clubs. The clubs rent the gym for € 48 per hour. The local authority considers installing a new climbing wall and then raising the price to € 50 per hour.

The gym is rented 150 hours a month on average. The climbing wall costs € 15,000, and an economic life of 10 years is estimated. Moreover, special wood care is necessary and costs

€175 annually. The city council requires a rate of return for capital invested of 4 %.

What is the accounting rate of return of the investment, and what is your investment advice?