Question
ABC Corp. invests $500,000 this year in a five-year project. The investment will have the salvage value of $50,000. The performance of the project over
ABC Corp. invests $500,000 this year in a five-year project. The investment will have the salvage value of $50,000. The performance of the project over the five-year span was as follows:
At Year 1, the project had $265,000 in revenues, $35,000 in costs of goods sold, $32,000 in other operating expenses, and $20,000 in interest payments. The tax rate was 20%.
At Year 2, the project had $260,000 in revenues, $40,000 in costs of goods sold, $30,000 in other operating expenses, and $20,000 in interest payments. The tax rate was 21%.
At Year 3, the project had $270,000 in revenues, $38,000 in costs of goods sold, $33,000 in other operating expenses, and $20,000 in interest payments. The tax rate was 21%.
At Year 4, the project had $290,000 in revenues, $42,000 in costs of goods sold, $35,000 in other operating expenses, and $21,000 in interest payments. The tax rate was 21%.
At Year 5, the project had $295,000 in revenues, $46,000 in costs of goods sold, $36,000 in other operating expenses, and $21,000 in interest payments. The tax rate was 21%.
What was the firms average accounting return during the five-year span? Hint: Average Book Value of Assets = (Initial Investment + the asset's salvage (resale) value) / 2.
A.) 21.42%
B.) 21.90%
C.) 24.76%
D.) 26.55%
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