An initial investment of $2,000 with average net cash flow after depreciation of $200 per year with an average depreciation of $100 per year has a simple rate of return of
A) 10 percent
B) 20 percent
C) 30 percent
D) None of the above

Question

Quizplus · Accepted Answer

The simple rate of return is calculated by dividing the annual incremental net operating income by the initial investment. The annual incremental net operating income is the net cash flow after depreciation plus depreciation (since depreciation is a non-cash expense that was subtracted to get the net cash flow). So, it's $200 (net cash flow) + $100 (depreciation) = $300. The initial investment is $2,000. Therefore, the simple rate of return is $300 / $2,000 = 0.15 or 15%, which is not listed, indicating an error in the question or answer choices. However, based on the provided options, none directly match the calculated result, suggesting a possible mistake in the calculation or interpretation of the options.

An Initial Investment of $2,000 with Average Net Cash Flow