Asked by Austin Collins on Jun 13, 2024
Verified
(Ignore income taxes in this problem.) Slomkowski Corporation is contemplating purchasing equipment that would increase sales revenues by $298,000 per year and cash operating expenses by $143,000 per year.The equipment would cost $712,000 and have a 8 year life with no salvage value.The annual depreciation would be $89,000.The simple rate of return on the investment is closest to:
A) 9.3%
B) 21.8%
C) 22.1%
D) 12.5%
Cash Operating Expenses
Costs directly associated with the operation of a business that require cash payment, excluding non-cash expenses such as depreciation.
Simple Rate
A term not commonly used in a standard context, possibly referring to a basic interest rate in financial terms.
Salvage Value
The estimated resale value of an asset at the end of its useful life, used in calculating depreciation expenses.
- Detail the principle of the simple rate of return and its implementation in examining investment performance.
Verified Answer
KA
Kishen AnathamJun 14, 2024
Final Answer :
A
Explanation : 
Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $66,000 ÷ $712,000 = 9.3% (rounded)
Reference: CH12-Ref1
(Ignore income taxes in this problem.)Vandezande Inc.is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value.The incremental net operating income and incremental net cash flows that would be produced by the machine are:
Assume cash flows occur uniformly throughout a year except for the initial investment.
Simple rate of return = Annual incremental net operating income ÷ Initial investment= $66,000 ÷ $712,000 = 9.3% (rounded)
Reference: CH12-Ref1
(Ignore income taxes in this problem.)Vandezande Inc.is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value.The incremental net operating income and incremental net cash flows that would be produced by the machine are:
Assume cash flows occur uniformly throughout a year except for the initial investment.
Learning Objectives
- Detail the principle of the simple rate of return and its implementation in examining investment performance.