a. Determine the average rate of return for a project that is estimated to yield total income of $570,720 over six years, has a cost of $603,500, and has a $52,500 residual value. Round to the nearest whole number.
%

b. A project has estimated annual net cash flows of $30,000. It is estimated to cost $123,000.
Determine the cash payback period. Round your answer to one decimal place.
years

Average rate of return is a capital budgeting method. It is used to determine if a firm should invest in a project or should not invest in a project

Average rate of return = average net income / average cost of investment

average net income =$570,720 / 6 = $95,120

Average cost of investment =( beginning book value of the investment - ending book value of the investment) / 2

(603,500 - 52,500) / 2 = $275,500

Average rate of return = ($95,120 / $275,500) x 100 = 35%

What is the cash payback period?

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period = Amount invested / cash flow

Payback period = 123,000 / 30,000 = 4.10 years

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