Question

ice Exercises OBJ.2 Average rate of return PE 10-1A Determine the average rate of return for a project that is estimated to yield total in- come of $170,000 over five years, has a cost of $320,000, and has a $20,000 residual value. EE 10-1 p412 EE 10-1 p412 PE 10.1 B Average rate of return OBJ. 2 Determine the average rate of return for a project that is estimated to yield total income of $36,000 over three years, has a cost of $70,000, and has a $10,000 residual value.

Answer 1

PE 10- 1A

Average rate of return = 20%

Explanation:-

Average rate of return = Estimated average annual income/Average investment

Estimated average annual income	$34,000 ($170,000/5years)
Average investment	$170,000 ($320,000 +$20,000)/2
Average rate of return	$34,000/$170,000 ×100 = 20%

PE 10 -1B

Average rate of return = 30%

Explanation:-

Average rate of return = Estimated average annual income/ Average investment

Estimated average annual income	$12,000 ($36,000/3)
Average investment	$40,000 ($70,000 +$10,000)/2
Average rate of return	$12,000/$40,000 ×100 = 30%