Question

Pierrés Hair Salon is considering opening a new location in French Liek. California. The cost of building a new salon is $260,000. A new salon will normally generate annual revenues of $55,200, with an nual expenses (including depreciation) of $38, 500. At the end of 15 years the salon wili have a salvage value of $74,000 Calculate the annual rate of retum on the project Annual rate of return eTextbook and Media Attempts: 2 of 3 used Saved work will be auto subunitted on the dile date Auko subrnissioncan take up to zo mingtes.

Answer 1

The annual rate of return on the project is -0.715, indicating a negative return.

Step-by-step explanation:

To calculate the annual rate of return on the project, we need to use the formula for return on investment (ROI):

ROI = (Ending Value - Initial Investment) / Initial Investment

In this case, the ending value is the salvage value of $74,000, and the initial investment is the cost of building the new salon of $260,000. Plugging these values into the formula, we get:

ROI = ($74,000 - $260,000) / $260,000 = -0.715

The annual rate of return on the project is -0.715, which means that the project is expected to have a negative return.