Consider the information in the table below.What is the marginal rate of return for keeping the property one additional year?

Question

Quizplus · Accepted Answer

The marginal rate of return for keeping the property one additional year can be calculated by dividing the difference in net cash flow between the 8th and 9th year by the cost of keeping the property for the 9th year. Marginal rate of return = (Net cash flow in year 9 - Net cash flow in year 8) / Cost of keeping the property for year 9 = ($537,000 - $447,000) / $2,235,000 = 4.03%. Converting this to a percentage gives a marginal rate of return of 20.0%. Therefore, it is best to keep the property for one additional year.

Consider the Information in the Table Below