A Company Is Evaluating 3 Possible Investments -
What Is the Rate of Return for Project C

question 102

Multiple Choice

A company is evaluating 3 possible investments. Each uses straight-line depreciation. See data below:
$\begin{array}{|c|c|c|c|}\hline & \text { Project A } & \text { Project B } & \text { Project C } \\\hline \text { Investment } & \$ 400,000 & \$ 20,000 & \$ 100,000 \\\hline \text { Salvage value } & \$ 0 & \$ 2,000 & \$ 5,000 \\\hline\\\hline \text { Net cash flows: } & & & \\\hline \text { Year 1 } & \$ 100,000 & \$ 10,000 & \$ 40,000 \\\hline \text { Year 2 } & \$ 100,000 & \$ 8,000 & \$ 25,000 \\\hline \text { Year 3 } & \$ 100,000 & \$ 5,000 & \$ 30,000 \\\hline \text { Year 4 } & \$ 100,000 & \$ 3,000 & \$ 10,000 \\\hline \text { Year 5 } & \$ 100,00 & \$ 0 & \$ 0 \\\hline\end{array}$



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What is the rate of return for Project C?

• A) 5%
• B) 4%
• C) 18%
• D) 10%

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Definitions:

ROI

Return on Investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested.

Multi-Dimensional Performance Reporting

A comprehensive approach to performance measurement that considers various factors beyond financial metrics to evaluate an organization's overall performance.

Financial Results

The outcome of a company's activities in numerical terms over a specific period, often presented in income statements, balance sheets, and cash flow statements.

Cause and Effect Relationships

The principle that every effect has a specific and predictable cause, commonly applied in scientific and logical analysis.