Question

Neil Morrison has just invested $130,000 in a restaurant. He expects to receive income of $24,000 a year, and to have the investment for 8 years. What is the accounting rate of return?

a.4.50%

b.5.60%

c.18.46%

d.14.52%

e.12.41%

Answer 1

The accounting rate of return for Neil Morrison's investment is calculated by dividing the annual income by the initial investment and converting to a percentage, resulting in an ARR of 18.46%.

Step-by-step explanation:

The accounting rate of return (ARR) is calculated by dividing the average annual profit by the initial investment and then multiplying by 100 to get a percentage. To find the ARR for Neil Morrison's investment, we can take his expected annual income of $24,000 and divide that by his initial investment of $130,000, and then multiply by 100 to express it as a percentage:

ARR = ($24,000 / $130,000) x 100 = 18.46%

Therefore, the correct option is c.18.46%, which represents the accounting rate of return for Neil Morrison's investment in the restaurant.