EA7. LO 11.2A mini-mart needs a new freezer and the initial investment will cost $300,000. Incremental revenues, including cost savings, are $200,000, and incremental expenses, including depreciation, are $125,000. There is no salvage value. What is the accounting rate of return (ARR)

Accounting  rate of return= 50%

Explanation:

The accounting rate of return is the average annual profit expressed as a percentage of the average investment.  

Accounting rate of return  is computed as

= Annual operating income/Average investment × 100  

Average investment = (Initial cost + scrap value)/2  

Average profit = Total income over investment period / Number of years

Annual profit = 200,000 -  125,000= 75,000.

Since the number of years is not given, we take the annul profit as $75,000

Average investment = initial + scrap value/ 2

                                 =( 300,000 + 0)/2 = 150,000

Accounting  rate of return =  75,000/150,000 × 100= 50 %

Accounting  rate of return= 50%

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)