Consider how Root Valley Brook Park Lodge could use capital budgeting to decide whether the $12,000,000 Brook Park Lodge expansion would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion:
(Click the icon to view the estimates.)
Assume that Root Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $1,000,000 at the end of its eleven-year life. The average annual operating income from the expansion is $1,809,053 and the depreciation has been calculated as $1,000,000.
Calculate the ARR. Round to two decimal places.
$\text{Average annual operating income} \quad / \quad \text{Average amount invested} = \text{ARR}$
$1,809,053 \quad / \quad 6,500,000 = 27.83 \%$