(Ignore income taxes in this problem.)The management of Ro Corporation is investigating automating a process.Old equipment,with a current salvage value of $11,000,would be replaced by a new machine.The new machine would be purchased for $243,000 and would have a 9 year useful life and no salvage value.By automating the process,the company would save $69,000 per year in cash operating costs.The simple rate of return on the investment is closest to:

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Quizplus · Accepted Answer

11ea7761_15be_08c9_81a5_ad4a0255d1a8_TB2580_00 Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $42,000 ÷ ($243,000 - $11,000) = 18.1% (rounded)

(Ignore Income Taxes in This Problem