After 15 years of employment in the airline industry, John started his own consulting company to use physical and computer simulation in the analysis of commercial airport accidents on runways

Economics Sep 24, 2020

After 15 years of employment in the airline industry, John started his own consulting company to use physical and computer simulation in the analysis of commercial airport accidents on runways. He estimates his average cost of new capital at 6% per year for physical simulation projects, that is, where he physically reconstructs the accident using scale versions of planes, buildings, vehicles, etc. He has established 14% per year as the MARR. What net rate of return on capital investments for physical simulation does he expect?

He expects a net rate return of % per year on capital investments for physical simulation.

Expert Solution

Computation of net rate of return;

Net rate of return= MARR- Cost of new capital

Given,

MARR= 14%

Cost of new capital= 6%

Put the values in the formula;

= 14%- 6%

= 8%

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