A Company Projects an Increase in Net Income of $40,000

question 75

Multiple Choice

A company projects an increase in net income of $40,000 each year for the next five years if it invests $500,000 in new equipment.The equipment has a five-year life and an estimated salvage value of $50,000.The company uses the straight-line method of depreciation.What is the annual rate of return?

• A)8%
• B)14.5%
• C)18%
• D)26.7%

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Definitions:

Data

Information collected for analysis, reference, or computation, often used to inform decision-making or research.

Dividend Yield

A metric indicating the annual dividends a company distributes in relation to its stock price.

Cash Dividends Per Share

The amount of cash dividends paid out to shareholders per share of stock, reflecting the distribution of earnings to shareholders.

Market Price

The current price at which an asset or service can be bought or sold.