Question

Russnak Corporation is investigating automating a process by purchasing a new machine for $505,000 that would have a 10 year useful life and no salvage value. By automating the process, the company would save $145,000 per year in cash operating costs. The company's current equipment would be sold for scrap now, yielding $35,000. The annual depreciation on the new machine would be $50,500. (Ignore income taxes.)
Required: Determine the simple rate of return on the investment (Round your answer to 1 decimal place.)

Answer 1

Answer:

20.1%

Explanation:

The computation of the simple rate of return is shown below;

= (operating cost - depreciation) ÷ (purchase of new machine - scrap value)

= ($145,500  - $50,500) ÷ ($505,000 - $35,000)

= ($94,500) ÷ ($470,000)

= 20.1%

hence, the simple rate of return is 20.1%

The same would be considered and relevant