Answered: What is the simple annual rate of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

What is the simple annual rate of return on a $10,000, 3-year investment with cash inflows of $2,000 each year?

A. 10%

B. 20%

C. 30%

D. 40%

Expert Solution

Step 1

The simple annual rate of return is calculated by dividing the annual cash flow by the initial investment.

Step 2

Initial investment = $10,000

Annual cash flows = $2,000

The simple annual rate of return is calculated as follows:

$\begin{array}{ccl} Simple annual rate of return & = & \frac{annual cash flows}{initial investment} \times 100 \\ = & \frac{$ 2, 000}{$ 10, 000} \times 100 \\ = & 20 % \end{array}$

Note: Annual cash flows are the same every year.

Step by step

Solved in 3 steps

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions