(Ignore income taxes in this problem.)Jark Corporation has invested in a machine that cost $60,000,that has a useful life of six years,and that has no salvage value at the end of its useful life.The machine is being depreciated by the straight-line method,based on its useful life.It will have a payback period of four years.Given these data,the simple rate of return on the machine is closest to:

Question

Quizplus · Accepted Answer

Payback period = Investment required ÷ Annual net cash inflow
4 years = $60,000 ÷ Annual net cash inflow
Annual net cash inflow = $60,000 ÷ 4 years = $15,000 per year
 11ea7761_15b4_e0d6_81a5_9b08fdbcb845_TB2580_00 Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $5,000 ÷ $60,000 = 8.3% (rounded)

(Ignore Income Taxes in This Problem