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 the average investment will be:

Question

Quizplus · Accepted Answer

Unadjusted rate of return = Average incremental increase in annual net income ÷ Net cost of original investment
Unadjusted rate of return = (Original investment - Recovery of investment)÷ Net cost of original investment
Unadjusted rate of return = ($12,000 - $0)÷ $36,000 = 0.33 = 33%

Nguyen Company Has an Opportunity to Purchase an Asset That