Reference: 10-02
Oriental Company has gathered the following data on a proposed investment project: $$\begin{array} { | l | l | }
\hline \text { Investment in depreciable equipment } & \$ 200,000 \
\hline \text { Annual net cash flows } & \$ 50,000 \
\hline \text { Life of the equipment } & 10 \text { years } \
\hline \text { Salvage value } & \$ 20 \
\hline \text { Discount rate } & 10 \% \
\hline
\end{array}$$ The company uses straight-line depreciation on all equipment.
-The simple rate of return on the investment would be:

Question

Reference: 10-02
Oriental Company has gathered the following data on a proposed investment project: $$\begin{array} { | l | l | } 
\hline \text { Investment in depreciable equipment } & \$ 200,000 \
\hline \text { Annual net cash flows } & \$ 50,000 \
\hline \text { Life of the equipment } & 10 \text { years } \
\hline \text { Salvage value } & \$ 20 \
\hline \text { Discount rate } & 10 \% \
\hline
\end{array}$$ The company uses straight-line depreciation on all equipment.
-The simple rate of return on the investment would be:

Quizplus · Accepted Answer

The simple rate of return is calculated as the annual incremental net operating income divided by the initial investment. The annual depreciation is ($200,000 - $20) / 10 = $19,998. The annual net operating income is $50,000 - $19,998 = $30,002. The simple rate of return is $30,002 / $200,000 = 15%.

Reference: 10-02 Oriental Company Has Gathered the Following Data on a Proposed

Reference: 10-02
Oriental Company Has Gathered the Following Data on a Proposed