The company estimated its cost of capital is 13%. Depreciation is calculated using the straight line method.         

 Calculate the accounting rate of return for project A.  

 

The following information relates to two capital expenditure projects. Because of capital rationing, only one project can be accepted. Initial cost Expected life Expected scrap value Expected net cash inflows: End of year 1 2 3 4 5 Project A R800 000 5 years R40 000 R 320 000 280 000 260 000 240 000 220 000 Project B R920 000 5 years R60 000 R 400 000 280 000 200 000 200 000 200 000