Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:
A) 6 percent.
B) 12 percent.
C) 18 percent.
D) 30 percent.

Question

Quizplus · Accepted Answer

Rate of return = (Return on investment / Cost of investment) x 100
Return on investment = $600,000
Cost of investment = $5,000,000
Return on investment after resale of factory = $5,600,000
Rate of return = [(600,000 + 5,000,000) / 5,000,000] x 100 = 112%
Therefore, the rate of return on this investment would be 12 percent.

Assume That a Firm Wants to Build a Factory That