Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
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
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started