(Ignore income taxes in this problem.) Overland Corporation has gathered the fol
ID: 2567855 • Letter: #
Question
(Ignore income taxes in this problem.) Overland Corporation has gathered the following data on a proposed investment project:
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 on the investment is: (Round your answer to the nearest interest rate.)
A. 5%
B. 12%
C. 11%
D. 16%
Investment required in equipment $ 470,000 Annual cash inflows $ 77,000 Salvage value of equipment $ 0 Life of the investment 20 years Required rate of return 14 %Explanation / Answer
Annual depreciation =470000/20= 23500 Annual net operating income = 77000-23500= 53500 Simple rate of return = 53500/470000= 11% Option C is correct
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