Lender Limited is considering investing in a new project. It is estimated that it will cost £100 000 to implement, and that the expected net profit after tax will be as follows: Year £ 1 18000 2 47000 3 65000 4 65000 5 30000 No residual value is expected. Required: Calculate the accounting rate of return of the proposed project.

Lender Ltd’s accounting rate of return Accounting rate of return (APR) [latex]= \frac{\text{Average annual net profit after tax}}{\text{Cost of the investment}}\times 100 \%[/latex] [latex] = \frac{\frac{1}{5}(£18 000 + 47 000 + 65 000 + 65 000 + 30 000) }{100000}\times 100 \%[/latex] [latex]= \frac{45000}{100000} \times 100 \%[/latex] [latex]= \underline{\underline{45 \% }}[/latex] Note: Based on the average investment, the ARR [latex]=\frac{£45000}{\frac{1}{2}(100000+0) } \times 100 \%[/latex] [latex]= \underline{\underline{90 \% }}[/latex]

Question 21.TQ.6: Lender Limited is considering investing in a new project. It...

Accounting for Non-Accounting Students

Lender Limited is considering investing in a new project. It is estimated that it will cost £100 000 to implement, and that the expected net profit after tax will be as follows:

Year	£
1	18000
2	47000
3	65000
4	65000
5	30000

No residual value is expected.
Required:
Calculate the accounting rate of return of the proposed project.

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Lender Ltd’s accounting rate of return

Accounting rate of return (APR) $= \frac{\text{Average annual net profit after tax}}{\text{Cost of the investment}}\times 100 \%$