Answer:
The simple rate of return on the investment is closest to 19.16%
Explanation:
In order to calculate the the simple rate of return on the investment we would have to use the following formula:
simple rate of return = <u>Annual incremental net operating income</u>
Initial investment
<u />
Initial investment = Cost of the new machine - salvage value of old machine
Initial investment = $384,000 - $24,000 = $360,000
Annual cost savings = $133,000
Annual depreciation = $384,000/6 = $64,000
Therefore, Annual incremental net operating income = $133,000 - $64,000 = $69,000
Therefore, simple rate of return = $69,000 / $360,000 = 19.16%
The simple rate of return on the investment is closest to 19.16%
