Asked by Kevin Simpson on May 14, 2024
Verified
(Ignore income taxes in this problem.)Ducey Corporation is contemplating purchasing equipment that would increase sales revenues by $79,000 per year and cash operating expenses by $27,000 per year.The equipment would cost $150,000 and have a 6 year life with no salvage value.The annual depreciation would be $25,000.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent.Show your work!
Operating Expenses
Costs incurred in the regular functioning of a business, excluding direct production costs; these may include rent, utilities, and administrative salaries.
Sales Revenues
Income earned by a company from its sales of goods or services, before any deductions.
Annual Depreciation
The annual expense taken for a fixed asset, representing a fraction of its cost spread over its lifespan.
- Comprehend and ascertain the simple rate of return (accounting rate of return) for different projects.
Verified Answer
DP
divar pointsMay 16, 2024
Final Answer : 
Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $27,000 ÷ $150,000 = 18.0%
Simple rate of return = Annual incremental net operating income ÷ Initial investment= $27,000 ÷ $150,000 = 18.0%
Learning Objectives
- Comprehend and ascertain the simple rate of return (accounting rate of return) for different projects.