Pat Inc, is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.): Sales $2,000,000 variable expenses $1,400,000 contribution margin $600,000 fixed expenses: fixed out-of-pocket cash expenses $300,000 depreciation $100,000 $400,000 net operating income $200,000 All of the above items, except for depreciation, represent cash flows. The company's required rate of return is 12%. Compute the project's simple rate of return.
Pat Inc, is considering a project that would have a ten-year life and would require a $1,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net operating income each year as follows (Ignore income taxes.):
Sales $2,000,000
variable expenses $1,400,000
contribution margin $600,000
fixed expenses:
fixed out-of-pocket cash expenses $300,000
net operating income $200,000
All of the above items, except for depreciation, represent
Compute the project's simple rate of return.
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