Question

The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals: 3D Printer Truck Amount of investment $32,000 $40,000 Useful life 4 years 9 years Estimated residual value 0 0 Estimated total income over the useful life $3,520 $14,400 Determine the expected average rate of return for each proposal. If required, round your answers to one decimal place. 3D Printer 55 % Truck 8 %

Answer 1

3D Printer 55 % Truck 8 %

Step-by-step explanation:

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

The average rate of return = Average net income ÷ Average investment

Particulars 3D printer Truck

Average net income (a) $880 $1,600

($3,520 ÷ 4 years) ($14,400 ÷ 9 years)

Average investment (b) $16,000 $20,000

($32,000 ÷ 2) ($40,000 ÷ 2)

Average rate of return (a ÷ b) 55% 8%