Asked by Daniel Gurov on Jul 07, 2024
Verified
The simple rate of return would be closest to?
A) 17.5%.
B) 30.0%.
C) 18.75%.
D) 12.5%.
Salvage Value
The calculated resale value an asset holds once it ceases to be useful.
Straight-Line Depreciation
A method of allocating the cost of a tangible asset evenly over its useful life.
Simple Rate Of Return
A financial metric that calculates the increase in profits or savings expected from an investment as a percentage of the initial investment cost.
- Conduct evaluations of projects through the application of the basic rate of return technique.
Verified Answer
JT
Johanz TusiimeJul 08, 2024
Final Answer :
C
Explanation :
The simple rate of return is calculated by dividing the annual incremental net operating income by the initial investment. The annual depreciation is calculated as (Purchase cost - Salvage value) / Life of the machine = ($50,000 - $5,000) / 8 = $5,625. The annual incremental net operating income is the annual cost savings minus the annual depreciation = $15,000 - $5,625 = $9,375. The initial investment is the purchase cost = $50,000. Thus, the simple rate of return = ($9,375 / $50,000) * 100% = 18.75%.
Learning Objectives
- Conduct evaluations of projects through the application of the basic rate of return technique.