A project is projected to have the following net income: Year 1 = $80,000; Year 2 = $40,000; Year 3 = –$30,000. The same project has an initial investment of $300,000 and will lose value at a rate of $100,000 per year. The numerator in the average accounting return method will be?

A project is projected to have the following net income: Year 1 = $80,000; Year 2 = $40,000; Year 3 = –$30,000. The same project has an initial investment of $300,000 and will lose value at a rate of $100,000 per year. The numerator in the average accounting return method will be?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 14P

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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