Question

Crockin Corp is considering a machine that will save 8,000 a year in cash operating costs for the next 6 years. At the end of the six years it would have no salvage value. If this machine cost33,848 now, the machine's rate of return would be closest to:

1) 9%
2) 10%
3) 11%
4) 12%

Answer 1

The question is about finding the rate of return for an investment in a machine with specific cost-saving benefits over 6 years. By using financial calculations like the internal rate of return (IRR), we can approximate the closest rate that equalizes the initial investment and the present value of the future savings.

Step-by-step explanation:

The question at hand involves calculating the rate of return for an investment in a machine. The machine cost is $33,848 and it promises to save $8,000 annually in cash operating costs over the next 6 years, with no salvage value at the end. We need to find the closest approximate rate of return for this scenario.

To find the rate of return, we can use financial calculations such as the internal rate of return (IRR), which equates the net present value (NPV) of cash flows to zero. Alternatively, the rate can be approximated by comparing the initial investment to the annual savings and considering the time period over which the savings occur.

Since the answer choices represent common interest rates, this is a problem that can be solved using a process of elimination and financial calculators or present value tables to determine which rate would match the cost of the machine to the present value of the future cash savings of $8,000 per year for 6 years.