Please show the work or you will get no ratings. (Ignore income taxes in this pr
ID: 2372713 • Letter: P
Question
Please show the work or you will get no ratings.
(Ignore income taxes in this problem.) The management of Rouleau Corporation is investigating automating a process. Old equipment, with a current salvage value of $10,000, would be replaced by a new machine. The new machine would be purchased for $240,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $64,000 per year in cash operating costs. The simple rate of return on the investment is closest to:
10.0% 26.7% 10.4% 16.7%
Explanation / Answer
cost of machine = 240000 - 10000 = 230000
annualcost savings = 64000
annual depriciation = 240000/6 = 40000
annualincremental net operating income = 64000 - 40000 = 24000
simple rate of return = 24000/230000 = 10.4%