The amount of the average investment for a proposed investment of $70,000 in a fixed asset,with a useful life of four years,recognition is given to the effect of straight-line depreciation on the investment,no residual value,and an expected total net income of $21,600 for the 4 years,is:

Question

Quizplus · Accepted Answer

To calculate the average investment, we need to find the total investment and divide it by the number of years. 
Total investment = Cost of fixed asset - depreciation
Depreciation per year = (Cost of fixed asset - Residual value) / Useful life
Since there is no residual value, depreciation = Cost of fixed asset / Useful life = $70,000 / 4 years = $17,500 per year
Total investment = $70,000 - ($17,500 x 4 years) = $0
Since the expected total net income is $21,600 for 4 years, the average net income per year is $5,400.
Therefore, the average investment =  (Initial investment + Final investment) / 2 =  ($70,000 + $0) / 2 = $35,000.
Therefore, the correct choice is C.

The Amount of the Average Investment for a Proposed Investment