Determine the average rate of return for a project that is estimated to yield total income of $36,000 over three years

Determine the average rate of return for a project that is estimated to yield total income of $36,000 over three years, has a cost of $70,000, and has a $10,000 residual value.

Answer:
Estimate average annual income $12,000
($36,000 ÷ 3 years)

Average investment $40,000
[($70,000 + $10,000) ÷ 2]

Average rate of return 30%
($12,000 ÷ $40,000)