The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $21,000, would be replaced by a new machine. The new machine would be purchased for $378,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $131,000 per year in cash operating costs. The simple rate of return on the investment is closest to

Question

Business

Case Chapman

4 October, 16:28

The management of Ro Corporation is investigating automating a process. Old equipment, with a current salvage value of $21,000, would be replaced by a new machine. The new machine would be purchased for $378,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $131,000 per year in cash operating costs. The simple rate of return on the investment is closest to

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Dante Hickman · Answer 1

The simple rate of return on the investment is 34.65%

Explanation:

The return on investment show a ratio between return and investment. Where, return is the gain or benefit which is profitable to the company, and investment is the purchase price to acquire the fixed asset or anything.

In mathematically,

Return on Investment = Return : Investment

where,

Return = $131,000

Investment = $378,000

So, Return on investment = $131000 : $378,000 = 34.65%

Hence, The simple rate of return on the investment is 34.65%