Testing Equipment | Vehicle
Amount of investment $104,000 | $32,000
Useful life 6 years | 8 years
Estimated residual value 0 | 0
Estimated total income over the
useful life $18,720 | $15,360
Determine the expected average rate of return for each proposal.
Answer:
Testing
Equipment Vehicle
$18,720 ÷ 6……………………………………………………………… $3,120
$15,360 ÷ 8……………………………………………………………… $1,920
Average investment:
($104,000 + $0) ÷ 2……………………………………………………… $52,000
($32,000 + $0) ÷ 2……………………………………………………… $16,000
Average rate of return:
$3,120 ÷ $52,000………………………………………………………… 6%
$1,920 ÷ $16,000……………………………………………………… 12%
