Average rate of return for testing
Equipment:
Formula for average rate of return = Estimated total income per
annum/Average investment
Estimated
total income per annum = $ 8400/4
= $ 2100
Average investment = (Investment – salvage value)/2
= ($56,000-0)/2 =
$28000
ARR = $ 2100 / $ 28000 = 7.50%
Average rate of return for testing
Equipment:
Estimated total income per annum = $10500/5
= $2100
Average investment = $40,000/2 = $20,000
ARR = $2100/$20,000
= 10.50%
