A 5-year project is estimated to cost $700,000 and have no residual value. If the straight-line depreciation method is used and estimated total income is $231,000, determine the average rate of return giving effect to depreciation on the investment. Round your percentage answer to one decimal place (for example, a value of. 1048 rounds to 10.5%).

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Business

Kaiser

15 June, 22:29

A 5-year project is estimated to cost $700,000 and have no residual value. If the straight-line depreciation method is used and estimated total income is $231,000, determine the average rate of return giving effect to depreciation on the investment. Round your percentage answer to one decimal place (for example, a value of. 1048 rounds to 10.5%).

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Answers (1)

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Demarion Mendoza · Answer 1

13.2%

Explanation:

The formula to compute the average rate of return is shown below:

= Average net income : average investment

where,

Average net income is

= $231,000 : 5 years

= $46,200

And, the average investment would be

= (Initial investment + salvage value) : 2

= ($700,000 + $0) : 2

= $700,000 : 2

= $350,000

Now put these values to the above formula

So, the rate would equal to

= $46,200 : $350,000

= 13.2%