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Elina [12.6K]
3 years ago
10

The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $24,000,

would be replaced by a new machine. The new machine would be purchased for $468,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $161,000 per year in cash operating costs. The simple rate of return on the investment is closest to (Ignore income taxes.):
Business
1 answer:
Margaret [11]3 years ago
3 0

Answer:

36.26%

Explanation:

Simple rate of return:

return/investment

<u>return:</u>

In this case, it will be the cost saving for the new machine: 161,000

<u>investment</u>

We will decrease the investment by the recovery from the old machine.

468,000 new machine - 24,000 salvage value of new   = 444,000

<u>Then, proceed to calculate:</u>

161,000/444,000 = 0.3612 = 36.26%

Consideration:

Is important to state that this rate, do not consider the time value of money, neither the cash flow of the project.

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