Question

Brainly The management at Nickel Corporation is investigating purchasing equipment that would increase sales revenues by $378,000 per year and cash operating expenses by $257,000 per year. The equipment would cost $300,000 and have a 10 year life with no salvage value. Nickel Corporation uses straight-line depreciation for all fixed assets. The simple rate of return on the investment is closest to (ignore income taxes):

Answer 1

Answer:

30.33%

Explanation:

The computation of the simple rate of return is shown below:

As we know that

Simple Rate of Return is

= Incremental Revenues - (Cash Operating Expenses + Depreciation expense ) ÷ Initial Investment

where,

Incremenal Revenues = $378,000

Cash Operating Expenses = $257,000

Depreciation is

= Cost of Equipment ÷ Usefull Life

= $300,000 ÷ 10 years

= $30,000

And, the Initial Investment is $300,000

Now putting these values to the above formula

So Simple Rate of Return is

= $378,000 - ($257,000 + $30,000) ÷ $300,000

= $378,000 - $287,000 ÷ $300,000

= $91,000 ÷ $300,000

= 30.33%