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Marina CMI [18]
4 years ago
10

(Ignore income taxes in this problem.) The management of Stanforth Corporation is investigating automating a process. Old equipm

ent, with a current salvage value of $15,000, would be replaced by a new machine. The new machine would be purchased for $408,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $141,000 per year in cash operating costs. The simple rate of return on the investment is closest to:
Business
1 answer:
solniwko [45]4 years ago
3 0

The simple rate of return on the investment is closest to: <u>34.5%</u>

<u>Explanation</u>:

<em><u>Given</u></em>:

Current salvage value = $15,000

Cost of new machine = $408,000

Cash operating cost = $141,000

Simple Return on Investment is Calculated as follows:-

Simple rate of return on the investment = Net Operating Cost Saved/ Initial Investment X 100

So Simple Return = 141000/408000 X 100

= 34.5%

The simple rate of return on the investment is closest to: 34.5%

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