(Ignore income taxes in this problem.) The management of Kissinger Corporation is investigating automating a process. Old equipment, with a current salvage value of $23,000, would be replaced by a new machine. The new machine would be purchased for $330,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $108,000 per year in cash operating costs. 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 savings by the initial investment. In this case, the annual cash savings are $108,000 and the initial investment is $330,000 - $23,000 = $307,000. Therefore, the simple rate of return is $108,000 / $307,000 = 17.3%.

(Ignore Income Taxes in This Problem