Homework SourseMC Qu 44 The Jackson Company has invested in a machine that
MC Qu. 44 The Jackson Company has invested in a machine that cost ...
The Jackson Company has invested in a machine that cost $90,000, that has a useful life of nine years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of five years. Given these data, the simple rate of return on the machine is closest to: (Ignore income taxes in this problem.) (Round your answer to 1 decimal place.)
5.3%
31.1%
6.4%
8.9%
| The Jackson Company has invested in a machine that cost $90,000, that has a useful life of nine years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of five years. Given these data, the simple rate of return on the machine is closest to: (Ignore income taxes in this problem.) (Round your answer to 1 decimal place.) |
Solution
D. 8.9%
Annual net cash inflow = $90,000 / 5 years = $18,000 per year
Simple rate of return = Annual incremental net operating income / Initial investment
Simple rate of return = $8,000 / $90,000
Simple rate of return = 8.9%
| Annual net cash inflow | $18,000 |
| Annual depreciation($90,000 - $0) / 9 | $10,000 |
| Annual incremental net operating income | $8,000 |
