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A 5-year project is estimated to cost $700,000 and have no residual value. If the straight-line depreciation method is used and estimated total income is $231,000, determine the average rate of return giving effect to depreciation on the investment. Round your percentage answer to one decimal place (for example, a value of .1048 rounds to 10.5%).

Respuesta :

Answer:

13.2%

Explanation:

The formula to compute the average rate of return is shown below:

= Average net income ÷ average investment

where,  

Average net income is

= $231,000 ÷ 5 years

= $46,200

And, the average investment would be

= (Initial investment + salvage value) ÷ 2

= ($700,000 + $0) ÷ 2

= $700,000 ÷ 2

= $350,000

Now put these values to the above formula  

So, the rate would equal to

= $46,200 ÷ $350,000

= 13.2%

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