16) ( ignore income taxes in this problem) a company is investigating automating

Question

16) ( ignore income taxes in this problem) a company is investigating automating a process by purchasing a new machine for $520,000 that would have an 8 year useful life and no salvage value. but automating the process, the company would save $134,000 per year in cash operating costs. the companys current equipm,ent would be sold for scrap now, yielding $22,000. the annual depreciation on the new machine would be $65,000,

what is the simple rate of return on the investment to the nearest tenth of a percent?

Explanation / Answer

net income = saving per year - depreciation

= 134000 - 65000

= 69000

simple rate of return = net income / (investment - scrap value of old equipment)

= 69000 / (520000 - 22000)

= 69000 / 498000

= 13.86%

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