Answer: $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 = [tex]\frac{Total\ operating\ during\ a\ life}{Equipment\ operating\ life\ years}[/tex]
= [tex]\frac{150,000}{5}[/tex]
= $30,000
