Joetz Corporation has gathered the following data on a proposed investment proje

Question

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment $ 31,500 Annual cash inflows $ 6,600 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:

Explanation / Answer

Annual net income = 6600-(31500/15) = 4500

Simple rate of return = Net income*100/initial investment

= 4500*100/31500

Simple rate of return = 14.29%

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