The anticipated purchase of a fixed asset for $400,000, with a useful life of five years and no residual value, is expected to yield total net income of $200,000 for the five years. The expected average rate of return on investment is 50%.

Question

Quizplus · Accepted Answer

The calculation for the expected average rate of return on investment is (total net income / initial investment) x 100%. 
In this case, the calculation would be ($200,000 / $400,000) x 100%, which equals 50%. Therefore, the statement regarding the expected average rate of return on investment is true. However, a rate of return of 50% is highly unrealistic and should raise suspicions about the accuracy of the information provided.

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