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Determine the average rate of return for a project that is estimated to yield total income of $250,000 over 4 years, cost $480,000, and has a $20,000 residual value. Round your answer to zero decimal

Question

Determine the average rate of return for a project that is estimated to yield total income of 250,000over4years,cost250,000 over 4 years, cost 480,000, and has a $20,000 residual value. Round your answer to zero decimal

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Solution

To calculate the average rate of return, we first need to determine the annual income from the project.

Step 1: Calculate the total income from the project The total income from the project is the total estimated income plus the residual value. In this case, it is 250,000+250,000 + 20,000 = $270,000.

Step 2: Calculate the annual income The annual income is the total income divided by the number of years. In this case, it is 270,000/4=270,000 / 4 = 67,500.

Step 3: Calculate the average rate of return The average rate of return is the annual income divided by the cost of the project, multiplied by 100 to get a percentage. In this case, it is (67,500/67,500 / 480,000) * 100 = 14.06%.

Rounding to zero decimal places, the average rate of return is 14%.

This problem has been solved

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