Question

The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years. the expected average rate of return on investment is 50%.
a. True
b. False

Answer 1

The answer is a.True
The cost of the fixed asset is already excluded from the net income. In this case, the rate of return can be computed by the total net income divided by the cost of the fixed asset. So that would be $200,000/$400,000. The rate of return would be 50%