Answer:
The simple rate of return on the investment is closest to a. 18.1%
Explanation:
Assuming that the company uses straight-line depreciation method, Depreciation Expense per year is calculated by following formula:
Depreciation Expense = (Cost of machine − Salvage Value)/Useful Life = ($243,000 - 0)/9 = $27,000
If Ro Corporation uses the new machine, the company would save $69,000 per year in cash operating costs. Net income from the machine per year = $69,000 - $27,000 = $42,000
Total investment on the machine = $243,000 - $11,000 = $232,000
Return on investment (ROI) = Net income/Total investment x 100% = $42,000/$232,000 x 100% = 18.1%
