Norman Rentals can purchase a van that costs $170,000; it has an expected useful

Question

Norman Rentals can purchase a van that costs $170,000; it has an expected useful life of five years and no salvage value. Norman uses straight-line depreciation. Expected revenue is $61,965 per year. Assume that depreciation is the only expense associated with this investment.

Determine the unadjusted rate of return based on the average cost of the investment. (Round your answer to 1 decimal place. (i.e., .234 should be entered as 23.4).)

Norman Rentals can purchase a van that costs $170,000; it has an expected useful life of five years and no salvage value. Norman uses straight-line depreciation. Expected revenue is $61,965 per year. Assume that depreciation is the only expense associated with this investment.

Explanation / Answer

Ans 1 Initial Cost 1,70,000.00 Annual Cash inflow=Expected revenue per Year      61,965.00 Pay Back Period=Initial Cost/Annual cash inflow                 2.74 Ans 2 Accounting profit Revenue      61,965.00 Less Depreciation=Initial Cost/No of useful Life      34,000.00 Net Profit      27,965.00 Investment 1,70,000.00 Unadjusted rate of return=Net Profit/Investment 16.45%

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