Question

A project requires an investment of Rs 5,00,000 and has a scrap
value of Rs. 20,000 after five years. It is expected to yield profits after
depreciation and taxes during the five years amounting to Rs 40,000,
Rs. 60,000, Rs 70,000, Rs 50,000 and Rs 20,000.Calculate the average rate
of return on the investment;​

Answer 1

Given: Investment in Project = Rs. 5,00,000

           Scrap Value after 5 years = 20,000

To Find: Average rate  of return on the investment

Solution:

Total Profit = Rs 40,000, + Rs. 60,000 + Rs 70,000 + Rs 50,000 + Rs 20,000

                  = Rs. 2,40,000

Average Profit = $\frac{2,40,000}{5}$

                        = Rs. 48,000

Net investment in project = 5,00,000 - 20,000

                                           = Rs. 4,80,000

Average Rate of Return = $\frac{Average Annual Profit}{Net investment in project}$ ×$100$

                                       = $\frac{48000}{480000}$ ×$100$

                                       = 10%

Answer 2

Answer:

Explanation:

A project requires an investment of Rs 5,00,000 and has a scrap

value of Rs. 20,000 after five years. It is expected to yield profits after

depreciation and taxes during the five years amounting to Rs 40,000,

Rs. 60,000, Rs 70,000, Rs 50,000 and Rs 20,000.Calculate the average rate

of return on the investment;​