Determine the rate of return

Question

Problem:

Amba Co. Is considering a one-year project that resquires an initial investment of $450,00; however, in raising this capital, Amba will incur an additional flotation cost of 2.0%. At the end of the year, the project is expected to produce a cash inflow of $550,000.

Required:

Question: Determine the rate of return that Amba expects to earn on the project after flotation costs are taken into account.

• 14.9%
• 19.8%
• 16.8%
• 15.8%

Note: Be sure to show how you arrived at your answer.