Salt Company is considering investing in a new facility to extract and produce s

Question

Salt Company is considering investing in a new facility to extract and produce salt. The facility will increase revenues by $220,000, but it will also increase annual expenses by $160,000. The facility will cost $980,000 to build, and it will have a $20,000 salvage value at the end of its useful life.

Calculate the annual rate of return on this facility.

Annual rate of return

% Salt Company is considering investing in a new facility to extract and produce salt. The facility will increase revenues by $220,000, but it will also increase annual expenses by $160,000. The facility will cost $980,000 to build, and it will have a $20,000 salvage value at the end of its useful life. Calculate the annual rate of return on this facility.

Explanation / Answer

Hi,

Please find the answer as follows:

Annual Cash Inflow = 220000 - 160000 = 60000

Annual Rate of Return = 60000/(960000/2)*100 = 12.5%

Answer is 12.5%

Thanks.

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