Question

$320,000 and would have a sixteen-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $54,000 per year to operate and maintain, but would save $95,000 per year in labor and other costs. The old machine can be sold now for scrap for $32,000. The simple rate of return on the new machine is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.) Noreen_5e_Rechecks_2019_10_16 Multiple Choice 6.56% 29.69% 14.58% 7.29%

Answer 1

Answer:

7.29%

Explanation:

The computation of simple rate of return on the new machine is shown below:-

For computing thee simple rate of return first we need to find out the annual accounting return and investment which is here below:-

Annual accounting return = Savings - Cost - Depreciation

= $95,000 -$ 54,000 - (320,000 ÷ 16)

= 95,000 - 54,000 - 20,000

= $21,000

Investment = 320,000 - 32,000

= 288,000

Simple rate of return = Annual accounting return ÷ Investment

= $21,000 ÷ $288,000

= 7.29%