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30 March, 07:06

A 5-year project is estimated to cost $700,000 and have no residual value. If the straight-line depreciation method is used and estimated total income is $231,000, determine the average rate of return giving effect to depreciation on the investment. Round your percentage answer to one decimal place (for example, a value of. 1048 rounds to 10.5%).

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  1. 30 March, 07:19
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    13.2%

    Explanation:

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

    = Average net income : average investment

    where,

    Average net income is

    = $231,000 : 5 years

    = $46,200

    And, the average investment would be

    = (Initial investment + salvage value) : 2

    = ($700,000 + $0) : 2

    = $700,000 : 2

    = $350,000

    Now put these values to the above formula

    So, the rate would equal to

    = $46,200 : $350,000

    = 13.2%
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