Problem
Landrum Corporation is considering investing in specialized equipment costing $250,000. The equipment has a useful life of 5 years and a residual value of $20,000. Depreciation is calculated using the straight-line method. The expected net cash inflows from the investment? are:
|
Year 1
|
$60,000
|
|
Year 2
|
$90,000
|
|
Year 3
|
$110,000
|
|
Year 4
|
$40,000
|
|
Year 5
|
$25,000
|
|
Total cash inflows
|
$325,000
|
Landrum Corporation's required rate of return on investments is 14%.
What is the accounting rate of return on the investment?