Question

C Corporation is investigating automating a process by purchasing a machine for $803,700 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $138,500 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $22,300. The annual depreciation on the new machine would be $89,300. The simple rate of return on the investment is closest to (Ignore income taxes.):

Answer 1

6.30%

Step-by-step explanation:

Calculation to determine what The simple rate of return on the investment is closest to

Using this formula

Simple rate of return= Annual net profit / net investment

Let plug in the formula

Simple rate of return= (138,500-89,300)/(803,700-22,300)

Simple rate of return= 49,200/781,400

Simple rate of return= 6.30%

Therefore The simple rate of return on the investment is closest to 6.30%