Question - The following data are accumulated by Eco-Labs, Inc. in evaluating two competing capital investment proposals:

Amount of investment Testing equipment: 80,000 Vehicle 28,000

Useful Life Testing equipment: 6 years Vehicle 8 years

Estimated residual value Testing equipment 0 Vehicle 0

Estimated total income over the useful life: Testing equipment 13,200 Vehicle 14,000

1. What is the expected average rate of return for testing equipment?

5.5%

12.5%

18.5%

21.5%

2. What is the expected average rate of return for the vehicle?

8.75%

12.5%

25%

28.5%