Chapter 11 Homework ezto.mheducation.com/hm.tpx 110% 166 points The management o

Question

Chapter 11 Homework ezto.mheducation.com/hm.tpx 110% 166 points The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $71,000 The machine would replace an okd piece of equipment that costs $18,000 per year to operate The new machine wouk cost $8,000 per year to operate. The okd machine currenty in use is fully depreciated and coulkd be sold now for a scrap value of $26,000. The new machine woukd have a usetul life of 10 years with no salvage value Required: Compute the simple rate of return on the new automated botling machine Simple rate of return Choose Choose Numerator: Simple Rate of Re Simple rate of return Hints References eBook & Resources 2 3 4 5 8 6 8

Explanation / Answer

Simple rate of return=annual incremental net operating income/initial investment

=$2,900/45,000

=6.44%

Operating cost of old machine $18,000 Less operating cost of new machine $8,000 Less annual depriciation on new machine(71000/10 years) $7,100 Annual incremental net operating income $2,900 Cost of new machine $71,000 Scrap value of old machine $26,000 Initial investment $45,000

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