ARR (average accounting return) for new manufacturing
You're trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installment cost of $12 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,627,000, $1,512,000, $1,101,000, and $1,313,000 over these four years, what is the project's average accounting return (AAR)?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/finance/arr-average-accounting-return-for-new-manufacturing-2m6
... the initial investment. Therefore, use second equation.
First, find depreciation
Depreciation per year = 12,000,000 / 4 (Straight line method, zero value at Y4)
Find profit per year