Dickerson Co.is evaluating a project requiring a capital expenditure of $810,000.The project has an estimated life of 4 years and no salvage value.The estimated net income and net cash flow from the project are as follows:

The company's minimum desired rate of return is 12%.The present value of $1 at compound interest of 12% for 1,2,3,and 4 years is 0.893,0.797,0.712,and 0.636,respectively.
Determine the average rate of return on investment,including the effect of depreciation on the investment.

Question

Dickerson Co.is evaluating a project requiring a capital expenditure of $810,000.The project has an estimated life of 4 years and no salvage value.The estimated net income and net cash flow from the project are as follows:
​
  The company's minimum desired rate of return is 12%.The present value of $1 at compound interest of 12% for 1,2,3,and 4 years is 0.893,0.797,0.712,and 0.636,respectively.
Determine the average rate of return on investment,including the effect of depreciation on the investment.

Quizplus · Accepted Answer

The Answer of Dickerson Co.is evaluating a project requiring a capital expenditure of $810,000.The project has an estimated life of 4 years and no salvage value.The estimated net income and net cash flow from the project are as follows:
​
  The company's minimum desired rate of return is 12%.The present value of $1 at compound interest of 12% for 1,2,3,and 4 years is 0.893,0.797,0.712,and 0.636,respectively.
Determine the average rate of return on investment,including the effect of depreciation on the investment.