Question

J Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment $ 32,000 Annual cash inflows $ 6,800 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:

Answer 1

Answer:

14.58%

Explanation:

The computation of the simple rate of return is shown below:

As we know that

Simple rate of return = Annual net income ÷ Initial investment

where,

Initial investment is $32,000

And, the annual net income is

= $6,800 - ($32,000 ÷ 15 years)

= $4,667

So, the simple rate of return is

= $4,667  ÷ $32,000

= 14.58%

We simply applied the above formula