The management of Indiana Corporation is considering the purchase of a new machine costing $400,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment:
|
Year
|
Income from Operations
|
Net Cash
Flow
|
|
1
|
$100,000
|
$180,000
|
|
2
|
60,000
|
120,000
|
|
3
|
30,000
|
100,000
|
|
4
|
10,000
|
90,000
|
|
5
|
10,000
|
90,000
|
The average rate of return for this investment is