Average Rate of Return The following data are accumulated by Watershed Inc. in evaluating two competing capital investment proposals: Project A Project Z Amount of investment $55,000 $50,000 Useful life 12 years 15 years Estimated residual value $5,000 $6,000 Estimated total income over the useful life $57,600 $63,000 Determine the expected average rate of return for each project. Project A % Project Z % I was following this formula Average total income = Total income over the useful life / Useful life Average investment = (Cost + Residual Value) / 2 Average rate of return = Average total income / Average investment

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