The annual rate of return expected on this equipment is as follows: Annual Net income = Annual Cash Flow - Depreciation Depreciation = ($304,000 - $0) / 5 Years = $60,800 Annual Net income = ($120,000 - $32,000) - $60,800 = $27,200 The annual rate of return = Annual Net income / (Average Investment) * 100 = $27,200 / ( $304,000/2) *100 = $27,200 / 152,000 *100 = 17.89% Help improve Study