Answer (B) is correct . The accounting rate of return (or unadjusted rate of return) is computed by dividing the annual increase in accounting net income by the required investment. The average net income over the life of the investment is $19,000 [($15,000 + $17,000 + $19,000 + $21,000 + $23,000) ¡Â 5 years]. Consequently, the accounting Answer (A) is incorrect because The accounting rate of return (or unadjusted rate of return) is computed by dividing the annual increase in accounting net income by the required investment. Answer (C) is incorrect because The accounting rate of return (or unadjusted rate of return) is computed by dividing the annual increase in accounting net income by the required investment. The percentage 28.1% is calculated by dividing the average of the average net after-tax cash flows and the average of the net income by the required investment. Answer (D) is incorrect because This percentage is calculated by dividing the average net after-tax cash flows by the required investment.
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