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9 December, 19:36

Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $122,610 and will increase annual expenses by $72,000 including depreciation. The oil well will cost $471,000 and will have a $11,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, e. g. 13%.)

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  1. 9 December, 20:03
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    21%

    Explanation:

    The formula to compute the annual rate of return is shown below:

    = Annual net income : average investment

    where,

    Annual net income equal to

    = Annual revenues - annual expense

    = $122,610 - $72,000

    = $50,610

    And, the average investment would be

    = (Initial investment + salvage value) : 2

    = ($471,000 + $11,000) : 2

    = $482,000 : 2

    = $241,000

    Now put these values to the above formula

    So, the rate would equal to

    = $50,610 : $241000

    = 21%
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