owners after that time. The required investment would be 100 percent depreciated (straight-line) over five years, so the depreciation would be $500,000/5 = $100,000 per year. The tax rate is 25 percent. Table 9.4 contains the projected revenues and expenses. Net income in each year, based on these figures, is also shown.

To calculate the average book value for this investment, we note that we started out with a book value of $500,000 (the initial cost) and ended up at $0. The average book value during the life of the investment is thus ($500,000 + 0)/2 = $250,000. As long as we use straight-line depreciation, the average investment will always be one-half of the initial investment.4

Looking at Table 9.4, we see that net income is $100,000 in the first year, $150,000 in the second year, $50,000 in the third year, $0 in Year 4, and -$50,000 in Year 5. The average net income, then, is:

[$100,000 + 150,000 + 50,000 + 0 + (-50,000)]/5 = $50,000 The average accounting return is:

Average net income $50,000

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