Multiple Choice Question 113 A company is considering purchasing factory equipment which costs $500000 and is...
Multiple Choice Question 113 A company is considering purchasing factory equipment which costs $500000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $229000 and annual operating expenses exclusive of depreciation expense are expected to be $90000. The straight-line method of depreciation would be used. If the equipment is purchased, the annual rate of return expected on this project is
Homework Answers
Calculation of Annual Rate of Return:
Annual Rate of Return = Net income/Cost of investment
= 256,500/500,000
= 51.3%
Calculation of Net income:
Net income = Revenue-Depreciation expense-other expenses
= 229,000-62,500+90,000
= 256,500
Depreciation expense = Cost of asset-salvage value/Useful life
= 500,000-0/8
= 62,500
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Multiple Choice Question 113 A company is considering purchasing
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