Question

use rate of return method to find the economically best project protect 1 initial cost $250,000 expenses per year $75,000 return at the end of year 5 $1,000.000, project 2 initial cost $350,000 exp.per year $100,000 and return end of year 5 $1,450,000,000 and project 3 initial cost $450,000, expenses per year $150,000 and the return at the end of year 5 is $1.900.000

Answer 1

total cost=initial cost +expenses per year *number of years

project 1

total cost =250000+75000*5=625000

rate of return =total return/total cost

rate of return=1000000/625000=1.6

project 2

total cost =350000+100000*5=850000

rate of return =total return/total cost

rate of return=1450000000/850000=1705.88

project 3

total cost =450000+150000*5=1200000

rate of return =total return/total cost

rate of return=1900000/1.583

so second project is economically best project .