After 15 years of employment in the airline industry, John started his own consu

Question

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 26% 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.

Explanation / Answer

ans....
Net Rate of Return = [ (1+MARR) / ( 1+ Cost of Capital ) ] - 1
= [ (1+0.29) / ( 1 +0.06) ] - 1
= [ 1.29 / 1.06 ] -1
= 1.2170 - 1
= 0.2170 i.e 21.70%
Pls comment, if any further assistance is required.

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