The Expected Average Rate of Return for a Proposed Investment

question 75

Multiple Choice

The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the four years is

• A) 45%
• B) 22.5%
• C) 11.3%
• D) 5.5%

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Definitions:

Minimum Required Rate Of Return

The lowest acceptable return on an investment, determined by the investor's risk tolerance and alternative investment options.

Unit Selling Price

The amount of money charged to the customer for a single unit of product or service.

Unit Variable Cost

The variable cost associated with the production of one unit of a product or service.

Total Fixed Costs

These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.