(Ignore income taxes in this problem.) Shields Company has gathered the following data on a proposed investment project:
-The simple rate of return on the investment is closest to:
A)5%
B)10%
C)15%
D)20%

Question

(Ignore income taxes in this problem.) Shields Company has gathered the following data on a proposed investment project: 
-The simple rate of return on the investment is closest to:
A)5% 
B)10% 
C)15% 
D)20%

Quizplus · Accepted Answer

Simple rate of return= (Net annual income/Initial investment) x 100

Net annual income= Total rental income - Operating expenses - Repairs and maintenance - Vacancy and collection loss
= (120000-60000-15000-9000)/2,50,000 x 100
= 21%

The simple rate of return on the investment is 21%, which is closest to option B, 10%.

(Ignore Income Taxes in This Problem