im confused why are they dividing initial investment by 2? why are they averaging income instead...
im confused why are they dividing initial investment by 2?
why are they averaging income instead of net cash flow?
The management of Indiana Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
|
Year |
Income from Operations |
Net Cash Flow |
|
1 |
$100,000 |
$180,000 |
|
2 |
60,000 |
120,000 |
|
3 |
30,000 |
100,000 |
|
4 |
10,000 |
90,000 |
|
5 |
10,000 |
90,000 |
The average rate of return for this investment is
|
18% |
||
|
21% |
||
|
53% |
||
|
10% |
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im confused why are they dividing initial investment by 2?
why are they averaging income instead...
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2)
3)
4)
5)
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1)
2)
3)
4)
5)
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