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14 July, 20:06

has gathered the following data on a proposed investment project (Ignore income taxes.) : Investment required in equipment $ 36,500 Annual cash inflows $ 8,600 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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  1. 14 July, 20:13
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    16.89%

    Explanation:

    As per the given question the solution of simple rate of return for the investment is provided below:-

    we need to first find out the accounting profit and depreciation

    where

    Accounting Profit = Annual Cash Inflow - Depreciation

    and

    Depreciation = Investment required in equipment : Life of investment

    = $36,500 : 15

    = $2,433.33

    now we will put the value by using the accounting profit formula.

    = $8,600 - $2,433.33

    = $6,166.67

    So,

    Simple Rate of Return = Accounting Profit : Initial Investment

    = $6,166.67 : $36,500

    = 16.89%
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