Q&A (back to index)
homework
Posted by sameetings on 06/24/2008 - 07:49
MULTIPLE CHOICE
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. 9%
c. 27%
d. 15%
Anita Marks, student, North Carolina
- 3339 reads
- login or register to post comments
- Send to a friend
- Add to a social bookmarking site
return on capital
I think the return on capital would be 9%.Net operating profit / total capitalnet operating profit per year is $54,000 divided by capital invested (no residual value) of $600,000 = 9%
18%
Seems to me $150,000 of the original investment is returned each year (in effect the cash flow of the depreciation). So, on average we have $525,000 invested the first year, $375,000 the 2nd year, $225,000 the 3rd year and $75,000 the 4th year. These amounts total $1,200,000 which represents the amount invested for a one year period of time. The $216,000 divided by $1,200,000 results in an 18% return.
Bill, Kansas