The Management of London Corporation Is Considering the Purchase of a New

Multiple Choice

The management of London Corporation is considering the purchase of a new machine costing $750,000.The company's desired rate of return is 6%.The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively.In addition to this information, use the following data in determining the acceptability in this situation: $$\begin{array} { c c c } \text { Year } & \text { Income from Operations } & \text { Net Cash Flow } \\\hline 1 & \$ 37,500 & \$ 187,500 \\2 & 37,500 & 187,500 \\3 & 37,500 & 187,500 \\4 & 37,500 & 187,500 \\5 & 37,500 & 187,500\end{array}$$ ? The average rate of return for this investment is:

A) 5%.
B) 10%.
C) 25%.
D) 15%.