C Corporation is investigating automating a process by purchasing a machine for $792,900 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $132,500 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $21,100. The annual depreciation on the new machine would be $88,100. The simple rate of return on the investment is closest to (Ignore income taxes.) :

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Wang

Business

3 August, 18:25

C Corporation is investigating automating a process by purchasing a machine for $792,900 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $132,500 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $21,100. The annual depreciation on the new machine would be $88,100. The simple rate of return on the investment is closest to (Ignore income taxes.) :

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Francis Savage · Answer 1

The simple rate of return = 53.2%

Explanation:

Annual Return from the old machine 132,500 - 88,100 = 44,400

Annual return from the sale of the old machine = 21,100/9=2433.333333

Total annual return - 2433.33 + 44,400 = 46833.33

Average investment = $ (792,900 + 0) / 9 = 88100

Simple average return = average annul return / Average investment

Average investment = (Initial cost + salvage value) / 2

Simple average return = (46,833.33 / 88,100) * 100 = 53.159

The simple rate of return = 53.2%