Asked by George Khoury on Jul 04, 2024
Verified
(Ignore income taxes in this problem.) Crowl Corporation is investigating automating a process by purchasing a machine for $792,000 that would have a 9 year useful life and no salvage value.By automating the process, the company would save $132,000 per year in cash operating costs.The new machine would replace some old equipment that would be sold for scrap now, yielding $21,000.The annual depreciation on the new machine would be $88,000.The simple rate of return on the investment is closest to:
A) 11.1%
B) 16.7%
C) 5.7%
D) 5.1%
Cash Operating Costs
Expenses directly associated with the operation of a business that require cash outlay, including rent, utilities, and payroll.
Useful Life
The estimated duration of time an asset is expected to be economically useful to an entity.
Simple Rate
A basic interest rate or return percentage applied to an investment or loan without compounding over a specific period.
- Calculate and interpret the simple rate of return on an investment.
Verified Answer
KR
Kevin RobertsJul 05, 2024
Final Answer :
C
Explanation : 
Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $44,000 ÷ ($792,000 - $21,000)= 5.7% (rounded)
Simple rate of return = Annual incremental net operating income ÷ Initial investment= $44,000 ÷ ($792,000 - $21,000)= 5.7% (rounded)
Learning Objectives
- Calculate and interpret the simple rate of return on an investment.