Question

The expected average rate of return for a proposed investment of $600,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $216,000 for the 4 years, is:____________A. 18%B. 15%C. 27%D. 9%

Answer 1

The answer is 18%

Step-by-step explanation:

Average rate of Return

= expected total net income / Average investment

Average net income

=$216,000 / 4 = $54,000

Average investment

= $600,000 / 2 = $300,000

Then the expected average rate of return

= $54,000 / $300,000

= 0.18 x 100

= 18%

18% is the average rate of return

Answer 2

18%

Step-by-step explanation:

Average rate of return= Average net income/Average investment ×100/1

Average net income= $216,000/4

= $54,000

Average investment= $600,000/2

= $300,000

Therefore, the average rate of return is calculated as follows.

= $54,000/$300,000 ×100/1

= 0.18×100

=18%

Hence the average rate of return is 18%