has gathered the following data on a proposed investment project (Ignore income taxes.) : Investment required in equipment $ 36,500 Annual cash inflows $ 8,600 Salvage value of equipment $ 0 Life of the investment 15 years Required rate of return 10 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

Question

Business

Maddison Short

11 December, 09:07

has gathered the following data on a proposed investment project (Ignore income taxes.) : Investment required in equipment $ 36,500 Annual cash inflows $ 8,600 Salvage value of equipment $ 0 Life of the investment 15 years Required rate of return 10 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:

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Brendan Hahn · Answer 1

16.89%

Explanation:

As per the given question the solution of simple rate of return for the investment is provided below:-

we need to first find out the accounting profit and depreciation

where

Accounting Profit = Annual Cash Inflow - Depreciation

and

Depreciation = Investment required in equipment : Life of investment

= $36,500 : 15

= $2,433.33

now we will put the value by using the accounting profit formula.

= $8,600 - $2,433.33

= $6,166.67

So,

Simple Rate of Return = Accounting Profit : Initial Investment

= $6,166.67 : $36,500

= 16.89%