Ask Question
12 November, 20:55

Knowledge Check 01 Addison Corporation is considering the purchase of equipment that would increase sales revenues by $250,000 per year and cash operating expenses by $100,000 per year. The equipment would cost $400,000 and have a 5-year life with no salvage value. The simple rate of return on the investment is closest to

A. 17.5%

B. 20.0%

C. 25.5%

D. 35.0%

+2
Answers (1)
  1. 12 November, 22:45
    0
    C. 25.5%

    Explanation:

    Net operating cashflow = (250,000 - 100,000) = 150,000; This is a recurring cashflow; the PMT

    Cost of equipment; the PV = 400,000

    Next, calculate the rate of return using Net operating cashflow per year and the equipment cost. You can do this with a financial calculator;

    N = 5

    PMT = 150,000

    FV = 0

    PV = - 400,000

    then CPT I/Y = 25.41%

    Therefore the return is closest to 25.5%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Knowledge Check 01 Addison Corporation is considering the purchase of equipment that would increase sales revenues by $250,000 per year and ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers