Joetz corporation has gathered the following data on a proposed investment project (ignore income taxes.):
investment required in equipment $ 30,000
annual cash inflows $ 6,000
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:
multiple choice
a. 16%
b. 18%
c. 20%
d. 22%

13.3%

Explanation:

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

= Annual net income ÷ average investment

where,  

Average investment is $30,000

And, the net income would be

= Annual net cash flows - depreciation expense

= $6,000 - $2,000

= $4,000

The depreciation expense

=  (Original cost - residual value) ÷ (useful life)  

= ($30,000 - $0) ÷ (15 years)  

= ($30,000) ÷ (15 years)  

= $2,000

Now put these values to the above formula  

So, the rate would equal to

= $4,000 ÷ $30,000

= 13.3%

This is the answer and the same is not given in the options

commercial banking

provide online payment services

provide online banking

asset management firms

invest in people's funds in securities

accept tax return refunds

answer; the cpi;