Question

An 8-year project is estimated to cost $480,000 and has no residual value. If the straight-line depreciation method is used and the average rate of return is 8%, determine the average annual income.

Answer 1

Based on the information given the average annual income is $19,200.

Using this formula

Estimated average annual income=(Estimated cost+Residual value)/2× Average rate of return

Let plug in the formula

Estimated average annual income=($480,000+$0)/2×8%

Estimated average annual income=$240,000×8%

Estimated average annual income=$19,200

Inconclusion  the average annual income is $19,200.

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