Purvell corporation
Calculation of annual net cash savings:
$ | ||
a | Annual cash savings | 15,000 |
b | Less: Depreciation | (5,625) |
c | Annual net cash savings (a-b) | $ 9,375 |
Depreciation = (Cost - Salvage value)/ life
= (50,000-5000)/8 years
= 45,000/8 = $ 5,625
Simple rate of return = annual net cash savings / initial investment
= 9,375/50,000 = 18.75%
Hence, Option "C" is correct.
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