Shields Company has gathered the following data on a proposed investment project:
$\begin{array}{|l|r|}
\hline \text { Investment Required in Equipment } & \$ 400,000 \
\hline \text { Annual Cash Inflows } & \$ 80,000 \
\hline \text { Salvage Value } & \$-0- \
\hline \text { Life of the Investment } & 10 \text { years } \
\hline \text { Discount Rate } & 10 \% \
\hline
\end{array}$
(Ignore income taxes in this problem.)
-The simple rate of return on the investment is closest to which of the following?
A) 5%.
B) 10%.
C) 15%.
D) 20%.

Question

Quizplus · Accepted Answer

The simple rate of return is calculated by dividing the annual cash inflows by the investment required in equipment. In this case, the simple rate of return is $80,000 / $400,000 = 20%.

Shields Company Has Gathered the Following Data on a Proposed