A Project That Cost $80,000 with a Useful Life of 5

question 28

Multiple Choice

A project that cost $80,000 with a useful life of 5 years is being considered. Straight-line depreciation is being used and salvage value is $5,000. The project will generate annual cash flows of $21,375. The annual rate of return is

• A) 15%.
• B) 50.3%.
• C) 16%.
• D) 17%.

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Definitions:

Annual Cash Flows

The total amount of money being transferred into and out of a business, especially analyzed on a yearly basis.

Net Present Value Method

A method of analysis of proposed capital investments that focuses on the present value of the cash flows expected from the investments.

Cash Inflows

Cash inflows refer to the movement of money into a company's accounts from various sources, including sales, financing, or investment.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.