Homework Answers
1) Solution: 8.3%
Explanation:
|
Annual net cash inflow (60,000/4) |
15000 |
|
Annual depreciation ($60,000 – $0)/6 |
10,000 |
|
Annual incremental net operating income |
5,000 |
Simple rate of return = [Annual incremental net operating income / Initial investment] = [$5,000 / $60,000] = 8.3%
2) Solution: 2,200
Explanation:
|
Incremental annual contribution margin (20,000 * $0.10) |
2,000 |
|
Annual operating cost savings ($3,800 - $3,600) |
200 |
|
Incremental annual net cash inflows |
2,200 |
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