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MC Question 1

A division is considering investing in capital equipment costing $2·7m. The useful economic life of the equipment is expected to be 50 years, with no resale value at the end of the period. The forecast return on the initial investment is 15% per annum before depreciation. The division’s cost of capital is 7%.

What is the expected annual residual income of the initial investment?

A. $0
B. ($270,000)
C. $162,000
D. $216,000