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16 October, 20:11

ABC Company has purchased a piece of equipment that cost $600,000 with an average amount invested of $200,000 and has an expected life of 5 years. The company's expects average operating income from the equipment to be $10,000 per year. What is the average rate of return (ARR) ?

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  1. 16 October, 20:28
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    The correct answer to the following question is 5%.

    Explanation:

    Given information -

    ABC company purchased equipment which costs - $600,000

    Average amount invested in the equipment - $200,000

    Equipment expected life - 5 years

    Average operating income that company gets from the equipment - $10,000

    ARR (Average annual return) -

    Operating income from equipment / Average amount invested in equipment

    = $ 10,000 / $ 200,000 x 100

    = 5%
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