A company is considering purchasing a machine that costs $256000
and is estimated to have no salvage value at the end of its 8-year
useful life. If the machine is purchased, annual revenues are
expected to be $100000 and annual operating expenses exclusive of
depreciation expense are expected to be $38000. The straight-line
method of depreciation would be used.
If the machine is purchased, the annual rate of return expected on
this machine is
24.22%.
48.44%.
11.72%.
23.44%.
Answer:- 23.44%
Explanation:-
Annual net income = (Annual Revenues - Annual operating expenses - Depreciation expense)
= ($100000 - $38000 - $32000)
= $30,000
[ Note :- Depreciation expense = Purchase price of machine / useful life = $256000 / 8 = $32000 ]
Average investment = ($256,000 ÷ 2) = $128,000
The annual rate of return = ( Annual net income / Average investment ) x 100
= ($30,000 ÷ $128,000) x 100
= 23.44%
A company is considering purchasing a machine that costs $256000 and is estimated to have no...
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