Exhibit 13-5

-Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying. Assume that any dough-mixing machine is expected to last indefinitely, that operating expenses are negligible, and that the price of donuts is expected to remain constant in the future. The marginal rate of return on the machine with the three-quart bowl is

Question

Exhibit 13-5
 
-Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying. Assume that any dough-mixing machine is expected to last indefinitely, that operating expenses are negligible, and that the price of donuts is expected to remain constant in the future. The marginal rate of return on the machine with the three-quart bowl is

Quizplus · Accepted Answer

To find the marginal rate of return, we need to calculate the increase in annual profit compared to the increase in investment cost for each machine.

For the three-quart bowl machine: 
- Investment cost = $550 
- Annual profit increase = $27 
- Marginal rate of return = $27 / $550 = 0.049 or 4.9% (rounded to 5%)

Based on these calculations, the machine with the three-quart bowl has the highest marginal rate of return at 5%. Therefore, it is the best choice for the donut shop.

Exhibit 13-5 -Exhibit 13-5 Shows Data on the Various Dough-Mixing Machines That