The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
|
Year
|
Income from
Operations
|
Net Cash
Flow
|
|
1
|
$18,750
|
$93,750
|
|
2
|
18,750
|
93,750
|
|
3
|
18,750
|
93,750
|
|
4
|
18,750
|
93,750
|
|
5
|
18,750
|
93,750
|
The average rate of return for this investment is
a. 5%
b. 15%
c. 10%
d. 25%