A division is considering investing in capital equipment costing $2.7m. The useful economic life of the equipment
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A division is considering investing in capital equipment costing $2.7m. The useful economic life of the equipment is expected to be 50 years, with no resale value at the end of the period. The forecast return on the initial investment is 15 percent per annum before depreciation. The division’s cost of capital is 7 percent.
What is the expected annual residual income of the initial investment?
(a) $0
(b) ($270 000)
(c) $162 000
(d) $216 000
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Answer C 162000 Divisional profit before depreciation 27m x 15 405000 per annum Le...View the full answer
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