The simple rate of return would be closest to:

A) 30.0%
B) 17.5%
C) 18.75%
D) 12.5%

Simple rate of return is calculated by dividing the increase in value (gross profit) by the initial investment. In this case, the gross profit is $375,000 and the initial investment is $2,000,000. So, the simple rate of return is 18.75%.

Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $9,375 ÷ $50,000 = 18.75%
Reference: CH12-Ref6
(Ignore income taxes in this problem.)Morrel University has a small shuttle bus that is in poor mechanical condition.The bus can be either overhauled now or replaced with a new shuttle bus.The following data have been gathered concerning these two alternatives: The University could continue to use the present bus for the next seven years.Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years.The University uses a discount rate of 12% and the total cost approach to net present value analysis.