Exam 3 Chapters 10-13 6 Crowl Corporation is investigating automating a process

Question

Exam 3 Chapters 10-13 6 Crowl Corporation is investigating automating a process by purchasing a machine for $807,300 that would have a 9 year useful life and no salvage value By automating the process, the company would save $140,500 per yéar in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $22,700. The annual depreciation on the new machine would be S89,700 The simple rate of return on the investment is closest to (Ognore income taxes) 15 0 Mumple Choice 647% T127% 527% 87%

Explanation / Answer

Simple rate of return on investment

= ( Saving in Cost -Depreciation) / (Cost of new machine - Scrap value of old machine)

= ($140,500 - $89,700) / ($807,300 - $22,700) = $50,800 / $784,600 = 0.0647 or 6.47%

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