Question

Poppy's Gumball Co. is planning to invest in a new marketing campaign that would require an initial investment of $85,000. The project is expected to provide incremental annual income of $27,200. The simple rate of return on the project is

Answer 1

The simple rate of return on the project is 32% if the cost investment is $85,000 and the annual income earned on it is $27,200.

What is annual income?

Annual income is the amount of gain earned by a company from the investment made in a long-term project. It can be determined from the income statement of a company.

Given values:

Annual income : $27,200

Initial investment : $85,000

Computation of simple rate of return on investment:

$\rm\ Simple \rm\ rate \rm\ of \rm\ return =\frac{\rm\ Annual \rm\ incremental \rm\ income}{\rm\ Initial \rm\ Investment} \\\rm\ Simple \rm\ rate \rm\ of \rm\ return=\frac{\ 27,200}{\ 85,000} \\\rm\ Simple \rm\ rate \rm\ of \rm\ return=32\%$

Therefore, after making an initial investment of $85,000 into the project with an annual income of $27,200, the rate of return is earned at 32%.

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