The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
-The expected average rate of return for a proposed investment of $650,000 in a fixed asset, with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is

Question

The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:  ​
-The expected average rate of return for a proposed investment of $650,000 in a fixed asset, with a useful life of 4 years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is

Quizplus · Accepted Answer

The average annual net income is $240,000 / 4 = $60,000. The average investment is $650,000 / 2 = $325,000. The average rate of return is ($60,000 / $325,000) * 100 = 18.5%.

The Management of Wyoming Corporation Is Considering the Purchase of a New