(Ignore income taxes in this problem. )Jimba's, Inc. , has purchased a new donut maker.It cost $20, 000 and has an estimated life of 10 years.The following annual donut sales and expenses are projected: Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return on the new machine is closest to:

Question

(Ignore income taxes in this problem. )Jimba's, Inc. , has purchased a new donut maker.It cost $20, 000 and has an estimated life of 10 years.The following annual donut sales and expenses are projected:  Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return on the new machine is closest to:

Quizplus · Accepted Answer

Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $5, 000 ÷ $20, 000 = 25%

(Ignore Income Taxes in This Problem