Question

Crowl Corporation is investigating automating a process by purchasing a machine for exist793, 800 that would have a 9 year useful life and no salvage value. By automating the process, the company would save exist133,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now. yielding exist21, 200. The annual depreciation on the new machine would be exist88, 200. The simple rate of return on the investment is closest to (Ignore income taxes.):
a) 5.80%
b) 11.12%
c) 16.72%
d) 5.12%

Answer 1

Answer:

5.80% , option A is correct

Explanation:

The formula for the simple rate of return on the investment=annualprofit/net amount invested

annual profit amount=savings in cash operating costs-annual depreciation on the new machine=$133,000-$88, 200=$ 44,800.00  

net amount of investment=pruchase cost of new machine-the scrap value of the old machine=$793, 800-$21, 200=$ 772,600.00  

simple rate of return on  investment=$ 44,800.00/$ 772,600.00=5.80%