Dylan Company is considering an investment in new equipment costing $720,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a salvage value of $45,000. The equipment is expected to generate net cash flows totaling $970,000 during the five years. What is the rate of return associated with the equipment investment?

Question

Quizplus · Accepted Answer

A) Calculations:
$970,000 - ($720,000 - $45,000) = $295,000
$295,000/5 = $59,000
$59,000/[($720,000 + $45,000)/2] = 15.4%

Dylan Company Is Considering an Investment in New Equipment Costing