The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total income of $360,000 for the 4 years is

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The average annual income is $360,000 / 4 = $90,000. The annual depreciation is $800,000 / 4 = $200,000. The average investment is ($800,000 + $0) / 2 = $400,000. The average rate of return is ($90,000 - $200,000) / $400,000 = 22.5%.

The Expected Average Rate of Return for a Proposed Investment