Fast. Food, Inc., has purchased a new donut maker. It cost $16,000 and has estim

Question

Fast. Food, Inc., has purchased a new donut maker. It cost $16,000 and has estimated life of 10 years. The following annual donut sales and expenses are projected: (Ignore income taxes in this problem)

Sales... $22,000

Expenses:

Flour, Etc., required in making donuts.. $10,000

Salaries ........................................ 6,000

Depreciation ................................... 1,600 17,600

_______ _________

Net Operating Income $4,400

The simple rate of return for the new machine is closest to:

A: 20%

B: 37.5%

C: 27.5 %

D: 80.0 %

Explanation / Answer

simple rate of return = $4,400/$16,000 =27.50% C: 27.5 %

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