Crowl Corporation is investigating automating a process by purchasing a machine for $809,100 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $141,500 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $22,900. The annual depreciation on the new machine would be $89,900. The simple rate of return on the investment is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

Question

Quizplus · Accepted Answer

The simple rate of return is calculated as (Annual savings - Annual depreciation) / Initial investment. Here, it is ($141,500 - $89,900) / ($809,100 - $22,900) = $51,600 / $786,200 = 6.56%.

Crowl Corporation Is Investigating Automating a Process by Purchasing a Machine