You’re trying to determine whether to expand your business by building a new manufacturing plant. The plant has an installation cost of $11.8 million, which will be depreciated straight-line to zero over its four-year life. If the plant has projected net income of $1,834,300, $1,887,600, $1,856,000, and $1,309,500 over these four years, respectively, what is the project’s average accounting return (AAR)?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.