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Homework answers / question archive / A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000
A project that cost $75,000 has a useful life of 5 years and a salvage value of $3,000. The internal rate of return is 12% and the annual rate of return is 18%. The amount of the annual net income was
a) $7,020
b) $6,480
c) $4,680
d) $4,320
Answer
The amount of the annual net income was $7020
Explanation
Average Investment = (Initial Investment + Salvage Value)/2
= (75000+3000)/2
= 39000
Amount of the annual net income = Average Investment * annual rate of return
= 39000*18%
= 7020
