1 Rustic Corporation bought a new machine for 360000 The mac

1. Rustic Corporation bought a new machine for $360,000. The machine has an estimated useful life of 12 years with no salvage value and a return on investment (ROI) of18%, ROI is computed using annual cash flows and straight-line depreciation. What is the annual cash flow using the gross book value method? A. $86,200 B. S38,400 C. $94,800 D. $64,600

Solution

C. $94,800

ROI = (Operating income - $30,000) / $360,000

0.18 = (Operating income - $30,000) / $360,000

0.18 * $360,000 = Operating income - $30,000

$64,800 = Operating income - $30,000

Operating income = $64,800 + $30,000

Operating income = $94,800