A company is evaluating three possible investments. Each uses the straight - line method of depreciation. The following information is provided by the company:

Investment: $212,000

Salvage Value: $30,000

Net Cash Flows

Year 1: $86,000

Year 2: $56,000

Year 3: $66,000

Year 4: $26,000

Year 5: $0

What is the accounting rate of return?

A) 14.15% B) 12.26% C) 10.74% D) 26.92%

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This is how I did it:

Total Net Cash Inflows	234,000
Less: Total Depreciation (212,000-30,000)	182,000
Total Operating Income During Operating Life	52,000
Divide By Assets Operating Life in Years	4
Average Annual Operating Income	13,000

I wasnt sure if I should divide by 4 or 5, but dividing by 4 got me an answer provided. Is that the right number to use?

Average Amount Invested = (Amount Invested + Residual Value)/2

= (212,000 + 30,000)/2 = 121,000

I used my salvage value as my residual value.

Finally, to get ARR:

= Average Annual Operating Income / Average Amount Invested

=13,000 / 121,000 = .1074380165 = 10.74%

Is that the right way or am I doing it inccorrectly?