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25 February, 06:06

A company projects an increase in net income of $180,000 each year for the next five years if it invests $900,000 in new equipment. The equipment has a five-year life and an estimated salvage value of $300,000. What is the annual rate of return on this investment? a. 20%b. 60%c. 30%d. 40%

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  1. 25 February, 07:35
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    c. 30%

    Explanation:

    The formula and the calculation of the annual rate of return is shown below:

    = Annual net income : average investment

    where,

    Annual net income is $180,000

    And, the average investment would be

    = (Initial investment + salvage value) : 2

    = ($900,000 + $300,000) : 2

    = $1,200,000 : 2

    = $600,000

    Now placing these values in the formula above

    So, the rate would equal to

    = $180,000 : $600,000

    = 30%
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