a) Calculate the Average Accounting Return (AAR) for the following investment and make one assessment of...

 

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a) Calculate the Average Accounting Return (AAR) for the following investment and make one assessment of whether the company should make the investment. Comment on your results. The basic investment is 600,000 and the economic life is estimated at 3 years. The investment is estimated to generate a turnover in year 1 of 500,000, year 2 of 450,000 and year 3 at 350,000 The production costs for the investment are estimated for year 1 to be 200,000, year 2 for 150,000 and year 3 of 100,000. The administrative costs for year 1 are estimated to be 50,000, year 2 for 50,000 and year 3 of 20,000. The corporate tax is 22% and the company assumes that an investment must have an AAR of at least 10% to be considered profitable. b) Discuss the advantages and disadvantages of AAR as a method of investment assessment. a) Calculate the Average Accounting Return (AAR) for the following investment and make one assessment of whether the company should make the investment. Comment on your results. The basic investment is 600,000 and the economic life is estimated at 3 years. The investment is estimated to generate a turnover in year 1 of 500,000, year 2 of 450,000 and year 3 at 350,000 The production costs for the investment are estimated for year 1 to be 200,000, year 2 for 150,000 and year 3 of 100,000. The administrative costs for year 1 are estimated to be 50,000, year 2 for 50,000 and year 3 of 20,000. The corporate tax is 22% and the company assumes that an investment must have an AAR of at least 10% to be considered profitable. b) Discuss the advantages and disadvantages of AAR as a method of investment assessment.

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a Average Accounting Return AAR Calculation and Assessment 1 Calculate Annual Profit For each year subtract the total costs production administrative ... View the full answer