Jones company invests in a piece of equipment that is expected to generate cash inflows of $50,000 per year over its life of 5 years. the equipment cost $100,000 and has no residual value. what is the average annual operating income from asset?

$30,000

Explanation:

Given that,

Equipment cost = $100,000

Cash inflow = $50,000 per year

Total net cash inflows during the operating life of equipment:

= Cash inflow per year × no. of years

= $50,000 × 5

= $250,000

Total depreciation during operating life = $100,000

Total operating income during a operating life:

= Total net cash inflows during the operating life - Total depreciation during operating life

= $250,000 - $100,000

= $150,000

Therefore,

Average annual operating income =

                                                          =

                                                          = $30,000

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