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Ipatiy [6.2K]
3 years ago
12

Pepper Company is using the annual rate of return to evaluate a potential investment. The original investment required is $120,0

00, and the investment’s salvage value is $20,000. What is the average investment that Pepper will use when computing the annual rate of return?
A : $60,000

B : $70,000

C : $50,000

D : Cannot be determined unless the useful life of the project is known.
Business
1 answer:
Naily [24]3 years ago
3 0

Answer:

B : $70,000

Explanation:

The formula and the computation of the  annual rate of return is shown below:

= Annual net income ÷ average investment

where,  

Annual net income is XXXXX

And, the average investment would be

= (Original investment required + salvage value) ÷ 2

= (120,000 + $20,000) ÷ 2

= $140,000 ÷ 2

= $70,000

By placing these values we can easily compute the annual rate of return

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