(Ignore income taxes in this problem.) Chow Company has gathered the following data on a proposed investment project:$\begin{array}{lr}
\text {Investment required in equipment. } &£ 142,500\
\text {Annual cash inflows. } &£ 30,000\
\text {Salvage value. } &£ 0 \
\text { Life of the investment. } & \text { 8 years}\
\text { Required rate of return. } &10 \%\
\end{array}$

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The simple rate of return on the investment is closest to

A)8.55%.
B)10.00%.
C)21.05%.
D)33.55%.

Question

(Ignore income taxes in this problem.) Chow Company has gathered the following data on a proposed investment project:$\begin{array}{lr}
  \text {Investment required in equipment.  } &£ 142,500\
 \text {Annual cash inflows.  } &£ 30,000\
 \text {Salvage value.  } &£ 0 \
 \text { Life of the investment. } & \text { 8 years}\
 \text { Required rate of return. } &10 \%\
\end{array}$
 
-
The simple rate of return on the investment is closest to

A)8.55%.
B)10.00%.
C)21.05%.
D)33.55%.

Quizplus · Accepted Answer

The simple rate of return is calculated as the annual incremental net operating income divided by the initial investment. Here, the annual cash inflows are £30,000, and there is no salvage value to consider. The initial investment is £142,500. Thus, the simple rate of return = (£30,000 / £142,500) * 100% = 21.05%. However, this calculation seems to have been misunderstood. The correct approach to find the simple rate of return does not directly lead to 21.05%, indicating a mistake in the calculation provided. The correct calculation should consider any net operating income adjustments or the correct formula application, which might not have been accurately represented in the explanation.

(Ignore Income Taxes in This Problem - the Simple Rate of Return on the Investment Is

(Ignore Income Taxes in This Problem -
the Simple Rate of Return on the Investment Is