A project has an annual rate of return of 15%. The project cost $220000, has a...
A project has an annual rate of return of 15%. The project cost $220000, has a 5-year useful life, and has no salvage value. Straight-line depreciation is used. The annual net income, exclusive of depreciation, is
$77000.
$60500.
$87450.
$33000.
Homework Answers
Answer: $60500
Explanation:
Depreciation per year = $220000 / 5 years = $44,000
Average investment = $220000 / 2 = $110000
Annual rate of return = Annual net income / Average investment
0.15 = Annual net income / $110000
Annual net income = $16500
Annual net income, exclusive of depreciation = $16500 + $44,000 = $60500
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