J Corporation has gathered the following data on a proposed investment project (Ignore income taxes.) : Investment required in equipment $ 30,500 Annual cash inflows $ 6,200 Salvage value of equipment $ 0 Life of the investment 15 years Required rate of return 10 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

Question

Simon Rhodes

Business

4 December, 06:23

J Corporation has gathered the following data on a proposed investment project (Ignore income taxes.) : Investment required in equipment $ 30,500 Annual cash inflows $ 6,200 Salvage value of equipment $ 0 Life of the investment 15 years Required rate of return 10 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

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Ximena · Answer 1

Simple accounting rate of return = 27.32%

Explanation:

The accounting rate of return = Average annual operating income / Average investment

Annual depreciation = (Cost - Salvage value) / No of years = (30,500 - 0) / 15

= 2033.33

Average Investment - = (Cost + scrap Value) / 2

= (30500 + 0) / 2 = 15,250

Average Annual income = 6,200 - 2033.33

= 4166.67

Simple accounting rate of return = (4,166.667 / 15,250) * 100

= 27.32%