Oscar is the manager of the component division for a small manufacturing company, and his department is evaluated using various metrics each year including Return on Investment (ROI). Oscar is debating whether he should purchase a new machine for his department. Oscar is determined to have an ROI of at least 7%. He is considering the purchase of Machine A with a return on sales of 0.3877, sales of $2,349, and a 10-year useful life or Machine B with a return on sales of 0.3994, sales of $2,560, and a 9-year useful life. Each machine would be depreciated using straight-line machine. What is the yearly Depreciation Expense for Machine B? (Do not round intermediate calculations.)
A) $1,339.99
B) $1,460.35
C) $1,488.88
D) $1,622.96

Question

Quizplus · Accepted Answer

This question requires the use of multiple steps in order to calculate the amount of yearly depreciation. The first step is to use the formula for ROI to determine the cost of the investment for Machine B. ROI = Return on Sales × Investment Turnover. 0.07 = 0.3994 × Investment Turnover. Investment Turnover = 0.1753. Now, use the formula for Investment Turnover to calculate the cost of the investment. Investment Turnover = Sales/Investment. 0.1753 = $2,560/Investment. Investment × 0.1753 = $2,560. Investment = $14,606.63. Lastly, divide this total by the machine's useful life to calculate its yearly depreciation. $14,606.63/9 years = $1,622.96 (Choice D).

Oscar Is the Manager of the Component Division for a Small