Rumsy Company is considering buying equipment for $240000 with a useful life of five years and an estimated salvage value of $10000. If annual expected income is $21000 the denominator in computing the annual rate of return is

Question

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The denominator in computing the annual rate of return is the average investment, which is calculated as (Initial Cost + Salvage Value) / 2 = ($240,000 + $10,000) / 2 = $125,000.

Rumsy Company Is Considering Buying Equipment for $240000 with a Useful