The management of Ballard MicroBrew is considering the purchase of an automated
ID: 2450074 • Letter: T
Question
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $51,000. The machine would replace an old piece of equipment that costs $13,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a scrap value of $21,000. The new machine would have a useful life of 10 years with no salvage value.
Compute the simple rate of return on the new automated bottling machine.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $51,000. The machine would replace an old piece of equipment that costs $13,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a scrap value of $21,000. The new machine would have a useful life of 10 years with no salvage value.
Required:Compute the simple rate of return on the new automated bottling machine.
Simple rate of return Choose Numerator: / Choose Denominator: = Simple Rate of Return / = Simple rate of return / = %Explanation / Answer
Operating Cost of Old Machine 13,000.00 Less Operating cost of new machine 6,000.00 Less Annual depreciation (51000/10) 5,100.00 Annual Incremental Net operating income 1,900.00 Cost of new Machine 51,000.00 Scrap value of old machine 21,000.00 Initial Investment 30,000.00 Simple rate of return = Annual Net operating inc/Initial invt Simple rate of return = 1900/30000 Simple rate of return = 6.33%
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