swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by

Question

3 years ago

6

swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by

$134,000 and will increase annual expenses by $76,000 including depreciation. The oil well will cost $449,000 and will have a $11,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return.

Business

1 answer:

lianna [129] · Answer 1 · 2021-11-17T00:03:12+03:00

Answer: 25.22%

Explanation:

Given that,

Annual revenue = $134,000

Annual expenses = $76,000

Oil well cost = $449,000

Salvage value = $11,000

Annual net income = Annual revenue - Annual expenses

= $134,000 - $76,000

= $58000

Average Investment = $\frac{449000 + 11000}{2}$

= $230000

Annual rate of return = $\frac{58000}{230000}\times100$

= 25.22%