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Vernon Painting Company is considering whether to purchase a new spray paint machine that costs $5,600....

Vernon Painting Company is considering whether to purchase a new spray paint machine that costs $5,600. The machine is expected to save labor, increasing net income by $840 per year. The effective life of the machine is 15 years according to the manufacturer’s estimate.

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Answer #1

Unadjusted rate of return

= Annual net income/Average investment

= 840/(5600/2)

= 840/2800

= 30%

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