Problem:

Delta Mu Delta is considering purchasing some new equipment costing $400,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. Projected net income for the four years is $18,900, $21,300, $26,700, and $25,000.

Required:

What is the average accounting rate of return?

It is one of the following:

• 11.49 percent
• 11.63 percent
• 12.01 percent
• 12.49 percent
• 13.20 percent