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(Ignore income taxes in this problem.) Overland Corporation has gathered the fol

ID: 2567855 • Letter: #

Question

(Ignore income taxes in this problem.) Overland Corporation has gathered the following data on a proposed investment project:


The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The simple rate of return on the investment is: (Round your answer to the nearest interest rate.)

A. 5%

B. 12%

C. 11%

D. 16%

Investment required in equipment $ 470,000 Annual cash inflows $ 77,000 Salvage value of equipment $ 0 Life of the investment 20 years Required rate of return 14 %

Explanation / Answer

Annual depreciation =470000/20= 23500 Annual net operating income = 77000-23500= 53500 Simple rate of return = 53500/470000= 11% Option C is correct