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The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present

The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively. In addition to this information, use the following data in determining the acceptability in this situation:

Year Income from Operations Net Cash Flow
1 $37,500 $187,500
2 37,500 187,500
3 37,500 187,500
4 37,500 187,500
5 37,500 187,500

The average rate of return for this investment is:

a.10%.

b.25%.

c.5%.

d.15%.

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