The Jason Company is considering the purchase of a machine that will increase revenues by $32,000 each year.Cash outflows for operating this machine will be $6,000 each year.The cost of the machine is $65,000.It is expected to have a useful life of five years with no salvage value.For this machine,the simple rate of return is:
A) 9.2%.
B) 20%.
C) 40%.
D) 49.2%.

Question

Quizplus · Accepted Answer

The simple rate of return is calculated by dividing the expected annual income by the initial investment, and expressing the result in percentage form. In this case, the expected annual income is $32,000, and the initial investment is $65,000. The cash outflows are irrelevant for this calculation.

Simple Rate of Return = (Expected Annual Income / Initial Investment) x 100%
Simple Rate of Return = ($32,000 / $65,000) x 100%
Simple Rate of Return = 0.492 x 100%
Simple Rate of Return = 49.2%

Therefore, the simple rate of return for the machine is 49.2%. However, this option is not listed. The closest option is B, which represents a simple rate of return of 20%. This is incorrect, as it is much lower than the actual simple rate of return calculated above. Therefore, the only correct answer is N/A, as none of the options provided are correct.

The Jason Company Is Considering the Purchase of a Machine