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vesna_86 [32]
3 years ago
11

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

$133,500 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. (Round answer to 0 decimal places, e.g. 13%.) Annual rate of return
Business
1 answer:
Simora [160]3 years ago
5 0

Answer: 25%

Explanation:

The annual rate of return is calculated by simply dividing the Annual income by the average investment.

Annual Income

Annual revenues of $133,500

Annual expenses of $76,000

Annual Income = Revenues - Expenses

Annual Income = $57,500

Average Investment

Calculated by dividing the Addition of the beginning and ending (salvage value) Investment figure by 2.

= (449,000+11,000)/2

= $230,000

Annual Rate of return is therefore,

= 57,500/230,000

= 0.25

= 25%

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