Brewer Company is considering purchasing a machine that would cost $387,430 and

Question

Brewer Company is considering purchasing a machine that would cost $387,430 and have a useful life of 6 years. The machine would reduce cash operating costs by $90,100 per year. The machine would have a salvage value of $107,190 at the end of the project. (Ignore income taxes.)

Compute the simple rate of return for the machine.

Brewer Company is considering purchasing a machine that would cost $387,430 and have a useful life of 6 years. The machine would reduce cash operating costs by $90,100 per year. The machine would have a salvage value of $107,190 at the end of the project. (Ignore income taxes.)

Compute the simple rate of return for the machine.

Explanation / Answer

a Payback period = 387430/90100= 4.3 b Depeciation expense = (387430-107190)/6= 46707 Simple rate of return=(90100-46707)/387430= 11.20%

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