Question

Magix Productions orders new equipment for the company. The new equipment costs $50,000 and will help the company to save $10,000 annually. What is the average rate of return of the equipment?

A. 15 percent
B. 20 percent
C. 35 percent
D. 40 percent

Answer 1

B. 20 percent

Step-by-step explanation:

The computation of the average rate of return of the equipment is shown below:

= Average net profit or savings ÷ average investment

= ($10,000 ÷ 2) ÷ ($50,000 ÷ 2)

= $5,000 ÷ $25,000

= 20%

hence, the average rate of return of the equipment is 20%

We simply applied the above formula so that the correct value could come

And, the same is to be considered