The expected average rate of return for a proposed investment of $6,000,000 in a
ID: 2479534 • Letter: T
Question
The expected average rate of return for a proposed investment of $6,000,000 in a fixed asset, using straight-line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of $12,000,000 over the 20 years is a. 20% b. 10% c. 40% d. 5% the answe is A but how
The management of Nebraska Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability:
Income from
Net Cash
Year
Operations
Flow
1
$100,000
$180,000
2
40,000
120,000
3
40,000
100,000
4
10,000
90,000
5
10,000
120,000
1.The cash payback period for this investment is
5 years
4 years
2 years
3 years
ANSWER: b
The average rate of return for this investment is
a. 18%
b. 16%
c. 58%
d. 10%
ANSWER: b but how
Income from
Net Cash
Year
Operations
Flow
1
$100,000
$180,000
2
40,000
120,000
3
40,000
100,000
4
10,000
90,000
5
10,000
120,000
Explanation / Answer
Average rate of return = Average return during the period/Average investment
Cash Flow Cummulative Cash flow Year 0 -490,000 -490,000 Year 1 180,000 -310,000 Year 2 120,000 -190,000 year 3 100,000 -90,000 year 4 90,000 - year 5 120,000 120,000Average rate of return = Average return during the period/Average investment
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.