Question
The management of River Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The present
The management of River Corporation is considering the purchase of a new machine costing $380,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
| Year | Operating Income | Net Cash Flow |
| 1 | $20,000 | $95,000 |
| 2 | 20,000 | 95,000 |
| 3 | 20,000 | 95,000 |
| 4 | 20,000 | 95,000 |
| 5 | 20,000 | 95,000 |
The average rate of return (rounded to one decimal place) for this investment is
A. 5.5%
B. 10.5%
C. 25.5%
D. 15.5%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Principles
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
9th Edition
978-0470317549, 9780470387085, 047031754X, 470387084, 978-0470533475
