Suppose that a new machine tool having a useful life of only one year costs $80,000.Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000.The expected rate of return on this tool is
A)80 percent.
B)8 percent.
C)2 percent.
D)20 percent.

Question

Quizplus · Accepted Answer

The expected rate of return is calculated as (Net Additional Revenue - Cost) / Cost. Here, it is ($96,000 - $80,000) / $80,000 = 0.20 or 20 percent.

Suppose That a New Machine Tool Having a Useful Life