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    Unadjusted Rated of Return

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    Dennis Harper lives in an area of the west that is becoming a popular tourist destination. Dennis is considering starting an off-road jeep tour business by purchasing a four-wheel-drive jeep. Because he plans to work from his house, the jeep is the only asset he will need to purchase. The jeep will cost $20,000 and will have a life of five years and no expected salvage value. Dennis will use the straight line depreciation method. Dennis estimates the net cash flows of the business for the next five years will be as follows:

    Year Net Cash Flow
    1 $6,000
    2 8,000
    3 7,000
    4 6,000
    5 5,000

    Question: What is the unadjusted rate of return of this investment?

    a) 12%
    b) 24%
    c) 60%
    d) 64%

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    Solution Preview

    The unadjusted rate of return is a profitability measurement tool used to determine how much revenue an investment will generate minus expenses. It is calculated as ...

    Solution Summary

    The unadjusted rate of return is examined for Dennis Harper.