Question

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.):

Investment required in equipment	$	37,000
Annual cash inflows	$	8,800
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: (Round your answer to 1 decimal place.)

Brewer_8e_Rechecks_2019_10_14

Multiple Choice

• 29.0%

• 17.1%

• 24.6%

• 12.2%

Answer 1

Ans.	Option 2nd 17.1%
	*Calculations for Depreciation expense :
	*Depreciation = (Initial investment - Salvage value) / Useful life in years
	($37,000 - $0) / 15
	$37,000 / 15
	$2,467	(rounded)
	*Calculations for Net income :
	Annual cash inflows	$8,800
	Less: Depreciation	-$2,467
	Net income	$6,333
	*Calculations for Simple rate of return :
	Simple rate of return   =   Net operating income / Initial investment
	$6,333 / $37,000
	17.1%