
Concept explainers
(a)
Average
Average rate of return is the amount of income which is earned over the life of the investment. It is used to measure the average income as a percent of the average investment of the business, and it is also known as the accounting rate of return.
The average rate of return is computed as follows:
Cash payback method:
Cash payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the long-term investment (fixed assets) of the business.
In simple, the cash payback period is computed as follows:
Net present value method is the method which is used to compare the initial
The average rate of return on the equipment.
(b)
The cash payback period for the equipment.
(c)
To calculate: The net present value of the investment.

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Chapter 25 Solutions
CengageNOWv2, 2 terms Printed Access Card for Warren/Reeve/Duchac’s Financial & Managerial Accounting, 14th
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