Nguyen Company has an opportunity to purchase an asset that will cost the company $36,000. The asset is expected to add $12,000 per year to the company's net income. Assuming the asset has a five-year useful life and zero salvage value, the unadjusted rate of return (based on average investment) will be:

Question

Quizplus · Accepted Answer

Unadjusted rate of return = Average incremental increase in annual net income ÷ (Net cost of original investment ÷ 2)
Unadjusted rate of return = $12,000 ÷ ($36,000 ÷ 2) = 0.66 = 66%

Nguyen Company Has an Opportunity to Purchase an Asset That