Question - The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals:
Amount of investment Testing equipment: 80,000 Vehicle 28,000
Useful Life Testing equipment: 6 years Vehicle 8 years
Estimated residual value Testing equipment 0 Vehicle 0
Estimated total income over the useful life: Testing equipment 13,200 Vehicle 14,000
1. What is the expected average rate of return for testing equipment?
5.5%
12.5%
18.5%
21.5%
2. What is the expected average rate of return for the vehicle?
8.75%
12.5%
25%
28.5%