(Ignore income taxes in this problem.) The Crawford Company is pondering an inve

Question

(Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that costs $350,000, that will have a useful life of eight years, and that will have a salvage value of $25,000. If this machine is purchased, a similar, old machine will be sold at a salvage value of $40,000. The anticipated yearly revenues and expenses associated with the new machine are: All of the revenues and expenses except depreciation are for cash. The company's required rate of return is 12%. The annual cash flows occur uniformly throughout the year. The simple rate of return, to the nearest tenth of a percent, of this investment is:

Explanation / Answer

DEPRECIATION PER YEAR = (350000-25000)/8 = 40625

INITIAL INVESTMENT = COST OF NEW MACHINE

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