The management of Ballard MicroBrew is considering the purchase of an automated

Question

The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $69,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a scrap value of $23,000. 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

Annual incremental net operating income/Initial investment=Simple rate of return 3100/46000= 6.7% Operating cost of old machine 17000 Less operating cost of new machine 7000 Less annual depreciation on the new machine 6900 Annual incremental net operating income 3100

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