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    Calculating ARR (average accounting return) for new manufacturing plant

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    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)?

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    Solution Preview

    Pls refer to attached

    Average Profit
    AAR = ------------------------------
    Average Investments

    Average Profit
    AAR = ----------------------
    Initial Investment

    In this question, we are only given the installation cost, which ...

    Solution Summary

    The solution first shows the formulas and then solves the problem.