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Cullumber Company is considering buying equipment for $220000 with a useful life of 5 years and...

Cullumber Company is considering buying equipment for $220000 with a useful life of 5 years and an estimated salvage value of $6000. If annual expected income is $28000, the denominator in computing the annual rate of return is

$220000.

$110000.

$113000.

$226000.

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Answer #1

Answer: $ 113000

Workings:

Average Investment = (Book Value + Book Value at End of Useful Life) / 2

= ( $ 220000 + $6000 ) / 2

= $ 226000 / 2

= $ 113000

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