The expected average rate of return for a proposed investment of $4,800,000 in a fixed asset, using straight line depreciation, with a useful life of 20 years, no residual value, and an expected total net income of $10,560,000 is:

Question

Quizplus · Accepted Answer

The formula to calculate the expected average rate of return is:
Expected average rate of return = (Total net income/Initial investment) x (1/Useful life) x 100%
Here, the initial investment is $4,800,000 and the useful life is 20 years.
Substituting the values:
Expected average rate of return = (10,560,000/4,800,000) x (1/20) x 100% = 22%
Therefore, the expected average rate of return is 22%. Option B) is the best choice for this question.

The Expected Average Rate of Return for a Proposed Investment