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A project produces annual net income of $18,200, $21,800, and $22,900 over its three-year life, respectively. The initial cost is $197,000, which is depreciated straight-line to a zero book value over three years. What is the average accounting rate of return if the required discount rate is 14.5 percent?

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Accounting Rate of Return formula:

ARR = Ave. Net Income / Initial Cost

Initial Cost = $197,000 (no salvage cost)

Ave. Net Income = $18,200 + $21,800 + $22,900 = $62,900 / 3yrs = $20,966.67
ARR = $20,966.67 / $197,000 = 0.106429797 * 2 = 21.29%

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