The anticipated purchase of a fixed asset for $400,000, with a useful life of 5 years and no residual value, is expected to yield total net income of $200,000 for the 5 years. The expected average rate of return on investment is 50%.

Question

Quizplus · Accepted Answer

The expected average rate of return on investment can be calculated as follows:

Average Rate of Return = Total Net Income / Initial Investment

In this case, the total net income is $200,000 and the initial investment is $400,000. Therefore, the average rate of return is:

Average Rate of Return = $200,000 / $400,000 = 0.5 or 50%

However, this does not mean that the investment is expected to yield a 50% return. It simply means that the total net income over the life of the asset is equal to 50% of the initial investment. In other words, the investment is expected to generate $200,000 in net income over 5 years, which is equal to 50% of the initial investment.

Therefore, the statement is false.

The Anticipated Purchase of a Fixed Asset for $400,000, with a Useful