Question

Determine the average rate of return for a project that is estimated to yield total income of $168,640 over 4 years, costs $451,000, and has a $45,000 residual value. fill in the blank 1 %

Answer 1

The average rate of return of the project that costs $451,000 and a net  total yield of income is $168,640, and further satisfies the conditions given above will be 10.38%.

What is an average rate of return?

Average rate of return, or ARR is the total rate of return generated annually for the given number of years, where the principal invested and the income is fixed and predetermined.

Using the formula and given information, the ARR will be computed as,

ARR = Average Net Income / (Cost – Residual Value)

Now using the given information, and the further calculations will be done as,

ARR = 42,160 / 406,000 = 10.38%

Thus, the average rate of return has been computed as above.

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