Average Rate of Return The average rate of return is another method that does not use present value and is commonly used in making capital investment decisions. Unlike the cash payback method, the average rate of return focuses on income rather than cash flow. Assume that the investment involves an initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: Year 1 - $20,000, Year 2 - $30,000, Year 3 - $40,000, Year 4 - $50,000 and Year 5 - $60,000. Use the minus sign to indicate a net loss. If an amount is zero, enter "0". Year Revenues Expenses Net Income Year 1 Net Income (loss) - 20,000 20,000 0 Year 2 Net Income (loss) 30,000 20,000 10,000 Year 3 Net Income (loss) 40,000 20,000 20,000 Year 4 Net Income (loss) 50,000 20,000 30,000 Year 5 Net Income (loss) 60,000 20,000 40,000 Total Net Income (five years) = $100,000 $100,000 Average Net Income - - $ 20,000 20,000 Average Rate of Return Previous Next Check My Work Email Instructor All work saved. Submit Assignment for Grading Save and Exit