How is the average book value of the formula calculated (the books gives a example but doesn`t really explain it well), the 200K comes from the investment in the project, but what about the rest?) it just says the average book value is 200K-0/2 = 100K, why divided by 2?
It`s on Page 57 of the 4th book.
There is an error in the formula. CFA Institute has released an erratum on this.
The average book value should be:
(Beginning Book Value + Ending Book Value)/2
= ($200,000 + $0)/2
= $100,000
The $0 represents the zero salvage value mentioned in the example.
Thanks for telling me there was a erratum for this!
Although I just noticed the LOS about calculate and interpret the formulas about AAR doesn`t exist, this formula will probably not be in the exam.