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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)?

#### Solution Preview

Pls refer to attached

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

Or
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.

\$2.49