Average Rate of Return (I don\'t understand this question! Please help!) Average

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Average Rate of Return (I don't understand this question! Please help!)

Average Rate of Return The following data are accumulated by Eco Labs, Inc. in evaluating two competing capital investment proposals: Testing Equipment Vehicle $32,000 $52,000 Amount of investment Useful life 4 years 7 years Estimated residual value $14,560 Estimated total income over the useful life $3,200 Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place. Testing Equipment Vehicle

Explanation / Answer

The expected average rate of return for each proposal = Estimated total income over the useful life / Amount of Investment

The expected average rate of return for testing Equipment = 3200 / 32000 = 10%

The expected average rate of return for Vehicle = 14560 / 52000 = 28%

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