Answer:
Option (A) is correct.
Explanation:
Accounting rate of return is determined to take the efficient business decision related to the capital budgeting and it tell us whether to accept the proposal or not. The following is the formula:
Accounting rate of return = (Average Income ÷ Initial Investment)
For example:
Net profit for 3 years are as follows:
2012 - 13 = $50 million
2013-14 = $100 million
2014-15 = $150 million
Initial investment = $200
Average profit = ($50 + $100 + $150) ÷ 3
= $100
Accounting rate of return = (Average Income ÷ Initial Investment)
= $100 ÷ $200
= 0.5 or 50%
The formula for accounting rate of return is A. Average Income / Initial Investment.
The accounting rate of return shows the percentage return on an investment in a given period.
The return is the average income for that period so the formula for accounting rate of return is:
= Average income / Initial investment x 100%
In conclusion, option A is correct.
Find out more on rates of return at https://brainly.com/question/15872811.
