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14 October, 16:04

J Corporation has gathered the following data on a proposed investment project (Ignore income taxes.) : Investment required in equipment $ 32,000 Annual cash inflows $ 6,800 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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  1. 14 October, 17:42
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    14.58%

    Explanation:

    The computation of the simple rate of return is shown below:

    As we know that

    Simple rate of return = Annual net income : Initial investment

    where,

    Initial investment is $32,000

    And, the annual net income is

    = $6,800 - ($32,000 : 15 years)

    = $4,667

    So, the simple rate of return is

    = $4,667 : $32,000

    = 14.58%

    We simply applied the above formula
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