Friday, October 26, 2018

Determine the average rate of return for a project that is estimated to yield total income of $148,500 over

Determine the average rate of return for a project that is estimated to yield total income of $148,500 over five years, has a cost of $300,000, and has a $30,000 residual value.

Answer:
Estimate average annual income $29,700 
($148,500 ÷ 5 years) 

Average investment $165,000 
[($300,000 + $30,000) ÷ 2] 

Average rate of return 18% 
($29,700 ÷ $165,000) 

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