Question

The management of Duker Corporation is investigating purchasing equipment that would increase sales revenues by $130,000 per year and cash operating expenses by $39,000 per year. The equipment would cost $328,000 and have an 8 year life with no salvage value. The simple rate of return on the investment is closest to: 12.5% 27.7% 38.5% 15.2%

Answer 1

15.2 %

Step-by-step explanation:

Given:

Cost of the equipment = $ 328,000

Increase in sales revenue = $ 130,000

Operating expenses = $ 39,000

Life of the equipment = 8 years

thus,

the depreciation = Cost of the equipment / life = $ 328000 / 8 = $ 41,000 per year

Therefore, the net increase in income per year = Increase in revenue - operating expenses - depreciation = $ 130,000 - $ 39,000 - $ 41,000 = $ 50,000

Hence, the return on investment = ( net increase income / Investment ) × 100 = ( 50,000 / 328,000 ) × 100 = 15.24 %

hence, the answer is 15.2%