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Swift Oil Company is considering investing in a new oil well. It is expected that the...

Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $128,225 and will increase annual expenses by $85,000 including depreciation. The oil well will cost $446,000 and will have a $9,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, e.g. 13%.)

Annual rate of return

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Answer #1

Annual rate of return

= Annual income increase/Average investment

= (128,225-85,000) / [(446,000+9,000)/2]

= 43,225/227,500

= 19%

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