Norman Rentals can purchase a van that costs $140,000; it has an expected useful

Question

Norman Rentals can purchase a van that costs $140,000; it has an expected useful life of five years and no salvage value. Norman uses straight-line depreciation. Expected revenue is $51,870 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 $140,000; it has an expected useful life of five years and no salvage value. Norman uses straight-line depreciation. Expected revenue is $51,870 per year. Assume that depreciation is the only expense associated with this investment.

Explanation / Answer

a)P=I/R

   P pay back period

   I amount invested

R investment return per period.

P=I/R=140000/51870

P=2.69 years.

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