PE 26-1A Average rate of return

Determine the average rate of return for a project that is estimated to yield total income of $148,500 over five years, has a cost of $300,000, and has a $30,000 residual value.

Answer:
Estimate average annual income $29,700 
($148,500 ÷ 5 years) 

Average investment $165,000 
[($300,000 + $30,000) ÷ 2] 

Average rate of return 18% 
($29,700 ÷ $165,000)