3. The management of Ballard MicroBrew is considering the purchase of arn automa

Question

3. The management of Ballard MicroBrew is considering the purchase of arn automated bottling machine for $59,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a scrap value of $25,000. The new machine would have a useful life of 10 years with no salvage value. Required: Compute the simple rate of return on the new automated bottling machine. automated botting machine. Simple rate of return Choose Denominator: Simple Rate of Return Choose Numerator: Simple rate of

Explanation / Answer

Simple Rate of Return :

Numerator = Incremental Benefits to be received per annuam

= Saving in the Operatin Cost - Depreciation

= (15,000-7,000-5,900) = 2,100 = Numerator

Denominator = Additional Investment Required

= Cost of New Machine - Salvage Value of Old Machine

= 59,000-25,000

= 34,000

Incremental Benefits to be

received per annuam

Additional Investment

Required

6.1765%

(2,100/34,000*100)

Numerator Denominator Simple Rate of Return

Incremental Benefits to be

received per annuam

Additional Investment

Required

Simple Rate of Return 2,100 34,000

6.1765%

(2,100/34,000*100)

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.