(Ignore income taxes in this problem.) Purvell Corporation has just acquired a new machine with the following characteristics:
The company uses straight-line depreciation and a $5,000 salvage value. Assume cash flows occur uniformly throughout a year except for the initial investment and the salvage at the end of the project.
-The simple rate of return would be closest to:

Question

(Ignore income taxes in this problem.) Purvell Corporation has just acquired a new machine with the following characteristics:
  The company uses straight-line depreciation and a $5,000 salvage value. Assume cash flows occur uniformly throughout a year except for the initial investment and the salvage at the end of the project.
-The simple rate of return would be closest to:

Quizplus · Accepted Answer

11ea7761_15c0_52ca_81a5_2d8f286efb08_TB2580_00 Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $9,375 ÷ $50,000 = 18.75%

(Ignore Income Taxes in This Problem