Why the simple rate of return may provide a misleading

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Question: Assume you are considering buying a Food Truck to sell tacos at local events. The ready to use truck costs $35, 000.00, and has an expected salvage value of $10, 000.00 at the end of an expected 10 year life. You think you can generate gross sales of $10, 000.00 per year, and you think cash expenses will average $3, 500.00 per year for the first 5 years, and $2, 500.00 per year for the second five years of the truck's life as you learn more about how to operate it efficiently. Calculate both the Payback Period, and the Simple Rate of Return for this proposed investment, AND explain why the simple rate of return may provide a misleading answer in this instance.

Reference no: EM131936561

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