Messersmith Corporation is investigating automating a process by purchasing a ma

Question

Messersmith Corporation is investigating automating a process by purchasing a machine for $688,000 that would have an 8 year useful life and no salvage value. By automating the process, the company would save $160,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $19,000. The annual depreciation on the new machine would be $86,000. The simple rate of return on the investment is closest to:

A) 23.3%

B) 11.1%

C) 10.8%

D) 12.5%

Explanation / Answer

The simple rate of return is computed as follows:

Simple rate of return = (Annual cost savings - Annual depreciation)

                                                  ÷ Initial investment = 11.1%

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects