Knowledge Check 02

Text-e Inc. creates educational content for K-12 and is considering developing interactive textbooks for students. The company's finance manager has provided the following data projections to be evaluated using the accounting rate of return.

Projections
For Hybrid Ultrabook
Initial investment	$	1,500,000
Project life		8	years
Salvage value	$	0
Annual Revenue and cost Data
Projected sales	$	900,000
Less:
Cash operating expenses		442,500
Depreciation expense		187,500
Net operating income	$	270,000

What is the accounting rate of return for the interactive textbook project under consideration?

• 12.50%

• 49.17%

• 18.00%

• 20.83%