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The Management of London Corporation Is Considering the Purchase of a New

question 81

Multiple Choice

The management of London Corporation is considering the purchase of a new machine costing $750,000. The company's desired rate of return is 6%. The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively. In addition to this information, use the following data in determining the acceptability in this situation: $\begin{array}{|l|l|l|}\hline\text { Net } & \text { Income from } \\\text { Cash }\\ \hline\text { Flow }& \text {Operations }&\text { Year }\\\hline \$ 187,500 & \$ 37,500 & 1 \\\hline 187,500& 37,500 & 2 \\\hline187,500& 37,500 & 3 \\\hline 187,500 &37,500 & 4 \\\hline 187,500& 37,500 & 5 \\\hline\end{array}$
The average rate of return for this investment is:

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