Answer:
The multiple choices are :
$28,000.
$21,000.
$14,000.
$30,000.
The correct option is $30,000 ,the last one.
Explanation:
Return on investment=net income/initial capital outlay
return on investment is 15% or 0.15
net income is unknown
initial investment is $120,000
0.15=net income/$120,000
net income=0.15*$120,000=$18,000
Annual cash flow=net income+depreciation
depreciation=cost of asset/useful life
cost of asset is $120,000 and useful life is 10
depreciation=$120,000/10=$12000
annual cash flow=$18,000+$12,000=$30,000
The annual cash flow using the gross book value method is $30,000.
Net income:
Net income=0.15×$120,000
Net income=$18,000
Depreciation:
Depreciation=$120,000/10
Depreciation=$12,000
Annual cash flow=Net income+ Depreciation
Annual cash flow=$18,000+$12,000
Annual cash flow=$30,000
Inconclusion the annual cash flow using the gross book value method is $30,000.
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