OLUFSEN Determine the average rate of return for a project t

OLUFSEN Determine the average rate of return for a project that is estimated to yield total income of $138,240 over four years, cost s

Solution

Estimated average annual income = $138,240 / 4 years = $34,560

Average investment = ($393,000 + $39,000) / 2 = $216,000

Average rate of return = $34,560 / $216,000 = 16%