(Ignore income taxes in this problem.) The management of Wiersema Corporation is investigating purchasing equipment that would increase sales revenues by $257,000 per year and cash operating expenses by $103,000 per year. The equipment would cost $430,000 and have a 5 year life with no salvage value. The simple rate of return on the investment is closest to:

Question

Quizplus · Accepted Answer

The simple rate of return is calculated by dividing the annual cash inflows by the initial investment. In this case, the annual cash inflows are $257,000 - $103,000 = $154,000, and the initial investment is $430,000. Therefore, the simple rate of return is $154,000 / $430,000 = 15.8%.

(Ignore Income Taxes in This Problem