The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and a $40,000 residual value, is expected to yield total net income of $500,000 for 5 years.The expected average rate of return is 50%.

Question

Quizplus · Accepted Answer

The expected average rate of return is calculated as (Annual Net Income / Initial Investment) * 100. The annual net income can be estimated by subtracting the residual value from the total net income over the useful life, then dividing by the useful life. However, the provided statement does not correctly calculate the average rate of return based on the given figures.

The Anticipated Purchase of a Fixed Asset for $400,000, with a Useful