Brewer Company is considering purchasing a machine that would cost $999,360 and

Question

Brewer Company is considering purchasing a machine that would cost $999,360 and have a useful life of 14 years. The machine would reduce cash operating costs by $104,100 per year. The machine would have a salvage value of $107,330 at the end of the project. (Ignore income taxes.)

Compute the simple rate of return for the machine. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Annual Cash Inflow = 104100

Payback Period = 999360/104100 = 9.6 years

Part B:

Annual Depreciation = (999360 -107330)/14 = 63716.43 or 63716

Annual Income = 104100 - 63716 = 40384

Simple Rate of Return = 40384/999360*100 = 4.04%

Thanks.

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