Fast Food, Inc., has purchased a new donut maker. It cost $16,000 and has an estimated life of 10 years. The following annual donut sales and expenses are projected (Ignore income taxes.): Assume cash flows occur uniformly throughout a year except for the initial investment.
The simple rate of return for the new machine is closest to:

Question

Fast Food, Inc., has purchased a new donut maker. It cost $16,000 and has an estimated life of 10 years. The following annual donut sales and expenses are projected (Ignore income taxes.):  Assume cash flows occur uniformly throughout a year except for the initial investment.
The simple rate of return for the new machine is closest to:

Quizplus · Accepted Answer

Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $4,400 ÷ $16,000 = 27.5%