Project a requires a $280,000 initial investment for new machinery with a five-year life and a salvage value of $30,000. the company uses straight-line depreciation. project a is expected to yield annual net income of $20,000 per year for the next five years. compute project a's accounting rate of return. express your answer as a percentage, rounded to two decimal places.

13%

Explanation:

The accounting rate of return (ARR) of an investment project is the accounting  profit (usually before interest and tax) expressed as a percentage of the capital  invested.The essential feature of ARR is that it is based on accounting profits, and the  accounting value of assets employed.

Annual Net income per year=20,000

Capital employed= (Initial cost of machinery+residual value)/2

Capital employed=(280,000+30,000)/2=155,000

Project A Accounting rate of return=Annual net income per year/Capital employed

Project A Accounting rate of return=20,000/155000

                                                          =13%

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